Why raise rates?

This refers to the editorial "To hike or not to hike" (January 29). The reason to raise the repo rate 0.25 per cent is not very convincing since the fundamentals of the economy and the forces behind inflation continue to remain more or less the same as obtained in December, though the Consumer Price Index has fallen slightly thanks to the reduction in vegetable prices. It would have been better to maintain the status quo which would have at least satisfied the market. The current Reserve Bank of India governor like his predecessor, seems to be gradually getting convinced that inflation needs to be contained at a comfortable level to ensure gross domestic product growth. Measures such as the withdrawal of old high-denomination notes printed before 2005, are indications that he wants to achieve price stability, before targeting growth. The latest measure, however, cannot be of much use in reducing inflation or enhancing growth.

T V Gopalakrishnan Bangalore

(This letter appeared in Business Standard dated 30/1/2014)