A challenge:Inflation-Growth trade off

During global meltdown RBI had provided aggressive stimulus measures,But the time has come to exit those stimulus packages step by step..A doctor always advice you to take the medicine when you are ill and discontinue once you recover. The same is happening with our Indian economy.RBI has to exit from those stimulus packages which provided during worldwide slowdown. but now Indian economy is on recovery mode.
RBI has hiked both repo and reverse repo rate by 25 point each.
Repo rate is rate at which RBI lends money to banks for short term. The hike in repo rate means it will make cost of borrowing costlier for banks and Reverse repo rate is the rate at which banks parks their money with RBI. Hike in reverse repo rate means it will lucrative for commercial banks to park their money with RBI. Repo rate increased from 4.75% to 5% and reverse repo from 3.25 to 3.5%.this will check inflation by checking the cheap money availability which has begun by RBI as a part of stimulus packages.It has become crucial to counter inflationary pressure because it exceeded than what RBI had projected for march 2010. The annual inflation rate for march 2010 is 9.9% while projection was 8.65a approx and it is expected that it will cross double digits.

India is on recovery mode but inflation is becoming serious matter of concern day by day and govt with the help of RBI wants to ease it but hike in repo rate will ease inflation but impact our growth rate.RBI saying is that to counter inflation we have to compromise growth in near term but in medium term it will benefit. increases in repo rate will increase interest rate. Inflation from food items is also catching now non food items.So to check inflation we have to compromise with growth.At this point of time the biggest challenge ahead RBI is inflation growth trade off. So by tightening monetary policy we can see growth in middle term.