The 'Base Effect' refers to a situation where the current year's inflation rate appears artificially high simply because the central bank recently raised the repo rate to tighten monetary policy.
- True
- False
Answer: False
The Base Effect is a purely mathematical and statistical phenomenon related to the year-on-year comparison of price indices. If the price index in the corresponding month of the previous year (the base) was unusually low due to a temporary shock, the current year's inflation rate will mathematically appear exceptionally high, even if current prices are rising at a normal, steady pace. It has nothing to do with current repo rate actions.