India's broad money supply is expanding at 17.3% a year, far faster than the 10.2% pace economist Steve Hanke says is consistent with the Reserve Bank of India's 4% inflation target — a gap he warns could eventually feed into higher prices.
In an October 10 post on X flagged by BusinessToday, Hanke said India's M3 money supply was "exploding," citing an annualised growth rate of 20.2% over the last six months and 31.5% over the last three months, and warned that the pace "spells trouble" for price stability.
What is the Golden Growth Rate?
Hanke's framework — which he calls the Golden Growth Rate — holds that money supply should expand at a pace consistent with a country's long-term real economic growth and its inflation objective. For India, he puts that rate at 10.2% annually. The latest M3 growth figure of 17.3% is significantly higher than this benchmark, which, according to his framework, raises the risk that excess monetary expansion could eventually push prices higher.
Why faster money supply growth matters
M3 is a broad measure of money supply that captures currency in circulation and various forms of bank deposits. Its growth can reflect changes in liquidity, banking activity and credit creation across the economy. When money supply expands faster than the economy's capacity to produce goods and services, it can contribute to inflation if demand rises faster than supply — particularly when supply constraints, higher commodity prices or strong consumer demand are already pressuring prices.
A word of caution
The figures do not tell the whole story on their own. As BusinessToday notes, the 10.2% rate is Hanke's estimate, not an official RBI monetary growth target, and money supply growth does not translate mechanically into inflation — the relationship depends on factors including money circulation, bank lending, economic output and demand. Shorter-period annualised rates can also be volatile and need to be assessed alongside longer-term trends.
For the RBI, the key question is whether faster money supply growth is translating into persistent inflation. The M3 figures alone do not establish that inflation is surging or that the central bank has lost control of monetary conditions; consumer price data, credit growth and demand trends will be decisive in determining the actual inflation outlook.
Sources:
BusinessToday: India's money supply growth hits 17.3% — Why expert warns of inflation risks
In an October 10 post on X flagged by BusinessToday, Hanke said India's M3 money supply was "exploding," citing an annualised growth rate of 20.2% over the last six months and 31.5% over the last three months, and warned that the pace "spells trouble" for price stability.
What is the Golden Growth Rate?
Hanke's framework — which he calls the Golden Growth Rate — holds that money supply should expand at a pace consistent with a country's long-term real economic growth and its inflation objective. For India, he puts that rate at 10.2% annually. The latest M3 growth figure of 17.3% is significantly higher than this benchmark, which, according to his framework, raises the risk that excess monetary expansion could eventually push prices higher.
Why faster money supply growth matters
M3 is a broad measure of money supply that captures currency in circulation and various forms of bank deposits. Its growth can reflect changes in liquidity, banking activity and credit creation across the economy. When money supply expands faster than the economy's capacity to produce goods and services, it can contribute to inflation if demand rises faster than supply — particularly when supply constraints, higher commodity prices or strong consumer demand are already pressuring prices.
A word of caution
The figures do not tell the whole story on their own. As BusinessToday notes, the 10.2% rate is Hanke's estimate, not an official RBI monetary growth target, and money supply growth does not translate mechanically into inflation — the relationship depends on factors including money circulation, bank lending, economic output and demand. Shorter-period annualised rates can also be volatile and need to be assessed alongside longer-term trends.
For the RBI, the key question is whether faster money supply growth is translating into persistent inflation. The M3 figures alone do not establish that inflation is surging or that the central bank has lost control of monetary conditions; consumer price data, credit growth and demand trends will be decisive in determining the actual inflation outlook.
Sources:
BusinessToday: India's money supply growth hits 17.3% — Why expert warns of inflation risks
