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July 31, 2007    

India to tackle inflation worries

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by Stewart Douglas
India to tackle inflation worries

The Indian Central Bank has today announced measures designed to curb inflation in one of the world’s fastest growing economies.

India has experienced exceptional economic growth over the last few years, prompting fears amongst analysts that inflation may continue to get out of hand and devalue the rupee.

The central bank has increased the cash reserve ration from 6.5% to 7%, attempting to reduce the overall amount of money loaned from banks.

In effect, the reserve rate rises mean that Indian banks are prohibited from lending beyond 93% of their total cash assets, in an attempt to suppress the money supply and prevent inflation from gathering momentum across the economy.

The news comes just twenty-four hours after announcements from Beijing to the same effect, attempting to curb the rising tide of inflation in China that comes with rapid economic expansion.

The Chinese CCR has been raised to 12%, compared to the 7% figure in India, showing the extent to which inflation is posing a threat to the Chinese economy and way of life.

The move is designed to help improve the living standards of Indian citizens, by increasing the value of their economy in a global sense. Whilst economic growth is rampant, inflation can only reduce the living standards of ordinary Indians, and lead to uncompetitiveness on an international scale.

Whilst the cash reserve ratio was increased, interest rates in India remained stable at 7.75%, emphasising that controlling the money supply through the CCR is the favoured inflation-preventing method of the Indian government at this time.

The Indian and Chinese economies are growing at a significantly quicker speed than any others worldwide, as their industry rapidly develops and grows, prompting the need for tight macroeconomic controls to avoid inflation and international economic problems.

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