RBI

The RBI has to keep a balance between growth, inflation, employment and currency stability. Now as we understand, any step taken to curtail inflation hurts growth. So, the RBI or for that matter, any Central Bank tries to rely on such measures as may control inflation without hurting other parameters much. Although, there are several tools for controlling inflation like hiking interest rates and controlling money supply, the policy rates or the Repo rates are generally changed first as they are Short term instruments. In practice, any step of RBI interferes with the market and decreases its efficiency. But Repo rates seem least hurting. In fact, they are used to control money supply as much as to give a psychological warning to the market. For, economics is more a game of psychology than of money!