Supply shocks to weaken monetary policy effectiveness: CEA Nageswaran

Chief Economic Advisor V Anantha Nageswaran on Friday said monetary policy tools such as interest rate adjustments may become less effective in tackling inflation in a world increasingly vulnerable to supply-side disruptions. "Fiscal and other public policy measures will be more important because raising interest rates will not solve the supply-induced problems. If anything, it may even be counter-productive," he said at the 9th Annual Food Systems Dialogue here. Amid persistent supply induced issues, countries will have to use all kinds of flexibilities with regards to the inflation targeting framework, he said. "Since 2022, very few countries have met their inflation target. So, it will be there as a framework, but I think countries will take creative liberties with it, as they have to," he added. Supply chain disruption following the Russia-Ukraine war, which has been ongoing since February 2022, followed by the West Asia crisis, has resulted in soaring prices, especially energy