Q: If inflation is high, why does RBI increase repo rate as a control measure?
A: The idea is that if RBI increases rate, banks would increase lending rates as well. This will make it more difficult for a customer to take loan and will weaken the demand. If demand weakens, inflation should come down.
Q: This practice is being followed worldwide by the central banks but the inflation seems to be stubborn. Why is this approach not working this time?
A: This time, the problem is the supply chain and the root problem is the war or non-cooperation or deglobalisation. When one adverse event gets over another one starts. So, the world is continuously under the state of non-cooperation or deglobalisation. This is the reason why inflation is stubborn.
