It was economist Milton Friedman who said famously that “inflation is always and everywhere a monetary phenomenon”. By that criterion, the Reserve Bank of India (RBI) should be concerned about the money supply (M3) growth this fiscal.
For the fiscal year to 1 July, money supply growth has been 4.8%, the highest in six fiscals. Money supply growth during the corresponding period of the last fiscal was much lower at 3.8%.
Also See | Chart of the day (PDF)
But with the economy slowing this year, why should the money supply growth be higher? Will the higher money supply growth not lead to more liquidity and spill over into inflation? Is this not another signal the central bank needs to tighten further?