The above is article from HINDU. The following are certain rel | ECONOMY by VIVEK SINGH

The above is article from HINDU. The following are certain relevant points:

1. Yesterday the inflation data was reported. CPI for May is 6.3% and WPI for May is 12.9% which is quite high than what was expected. Now, whenever you make Fixed Deposit in bank and if the inflation is high then you demand more interest rate. In the same way when you are purchasing a (new issue) of bond then you demand more interest rate on the bond. AND in the same way if you are purchasing bond in the secondary market (which was issued earlier at a lesser interest rate because at that time the inflation was less) and inflation has increased then you DEMAND more return i.e. more yield and yield shoots up. So, in short when inflation goes up, the price of (already issued) bond comes down and the yield on bonds (traded in secondary market) goes up.

2. Rupee depreciated because of two reasons. First is inflation in domestic economy moved up and Second is the demand for dollars by importers has increased.
When inflation goes up it means Rupee looses value in terms of goods and services. When rupee looses value in terms of goods and services then Rupee looses value in terms of dollars also.

3. Higher inflation has created a dilemma for RBI whether it should focus on controlling inflation (which is the primary objective of Monetary Policy function of RBI) or it should focus on increasing economic growth because due to Covid the economic growth has come down. To control inflation RBI will have to increase REPO rate and to support economic growth RBI will have to reduce REPO rate and that is the reason for dilemma.