This is what the Hindu news item reported today: “An expert committee appointed to examine the current monetary policy framework of the Reserve Bank of India (RBI) has suggested that the apex bank should adopt the new CPI (consumer price index) as the measure of the nominal anchor for policy communication.
The committee felt that inflation should be the nominal anchor for the monetary policy framework. The nominal anchor or the target for inflation should be set at 4 per cent with a band of +/- 2 per cent around it. (here).
What is the meaning of all these? If we remove all the technical jargon and linguistic trickery of the central bankers and mainstream economists, then, this simply means that the Urjit Patel committee is proposing to steal 4% of our annual wealth! It is as simple as that. Anyone with a sound understanding of monetary economics can easily uncover this hidden agenda of RBI.
Inflation is nothing but theft of savers’ hard earned wealth. By proposing to keep the annual inflation target at 4%, RBI is proposing to steal 4% of our annual wealth. Inflation is an increase in the supply of money and credit out of thin air. Currency note rupee is a commodity like any other commodity in the market whose value i.e., its purchasing power is determined by its demand and supply. Any increase in the supple of rupees, assuming its demand to be constant, will reduce its purchasing power. This means, an annual increase of 4% in the supply of rupees will decrease its purchasing power by 4%. That in turn means, every year your rupee note will buy 4% less goods and services compared to the previous year. Compounded over a long period of time, this means a secular decline in the purchasing power of rupee and a steady decline in the standard of living of common man who saves his hard earned income. Not only this, this 4% inflation target will also trigger many boom and bust cycles.
RBI's money printing is what is making our economy sick. That is what is keeping millions of Indians poor. That is what is creating the inequality of income and wealth. Having a 4% inflation target will only make us more poorer. Instead of having any of these targets, we must dismantle the RBI and send all its officials packing as soon as possible.