Traditional Monetary Policy Losing Effectiveness in Curbing Inflation, Emphasis on Fiscal Strategies: CEA Nageswaran

New Delhi, November 13 (Daily Kiran) : Chief Economic Advisor V. Ananth Nageswaran stated on Friday that the likelihood of supply-side disruptions is increasing globally. This trend may render traditional monetary policy measures, such as interest rate adjustments, less effective in combating inflation.

Speaking at the 9th Annual Food Systems Dialogue in New Delhi, he emphasized the growing importance of fiscal and public policy strategies. Simply raising interest rates will not resolve supply-related issues and could even have adverse effects.

Nageswaran suggested that countries must adopt greater flexibility in their strategies for controlling inflation, given the ongoing supply challenges. He noted that since 2022, very few nations have achieved their inflation targets. While a framework remains in place, he believes countries will need to adapt based on their specific circumstances.

The disruptions in supply chains, exacerbated by the ongoing Russia-Ukraine conflict and crises in the Middle East, have led to significant price increases worldwide, especially in energy. To manage inflation, major central banks, including the U.S. Federal Reserve, have raised interest rates.

He reiterated that since 2022, only a handful of countries have met their inflation goals. Thus, while the framework exists, adaptability will be crucial.

Nageswaran referenced various reports predicting that sudden supply disruptions could continue to affect the global landscape for the next 25 to 30 years, or even longer. He explained that nations are now utilizing supply chains as strategic tools, leveraging natural waterways and other critical routes to their advantage. Consequently, traditional monetary measures like interest rate changes may no longer be effective in addressing these challenges.

In light of these conditions, Nageswaran advocated for re-establishing agriculture as a primary engine of economic growth.