India’s monetary policy must remain ‘actively disinflationary’

India’s monetary policy must remain ‘actively disinflationary’

Subject :Economy

Section: Monetary Policy

Context: In the current situation, RBI Governor said monetary policy must remain actively disinflationary to ensure that ongoing disinflation process progresses smoothly

What is Disinflation?

• Disinflation is a decline in the rate of inflation. The inflation rate is declining over time, but it remains positive.
• Disinflation should not be confused with deflation, which is fall in price level. Disinflation accompanied by higher economic growth, is a favourable position for economy.
• Deflation occurs when asset and consumer prices fall over time. t is the opposite of the often-encountered inflation.
• A reduction in money supply or credit availability is the reason for deflation in most cases. Reduced investment spending by government or individuals may also lead to this situation.

Impact:

Deflation leads to a problem of increased unemployment due to slack in demand.

Is deflation similar to disinflation?
Deflation is different from disinflation as the latter implies decrease in the level of inflation whereas on the other hand deflation implies negative inflation.