Key Points
All eyes are on what Governor Shaktikanta Das does to interest rates at the Monetary Policy Committee (MPC) meeting this week..
How are things stacking up? Inflation above the mandated target of 4% dominates the theme on the hiking side, while the lagged but powerful transmission of 250 basis points increase after the mandated linking of loans to external benchmarks, slowing growth, a positive real interest rate of 100 basis points, and the possibility of easing of price pressures due to the global slowdown are weighing on the other...
She argues that raising real policy rates has a stronger effect on growth than on inflation, that monetary policy works with a lag and that the macroeconomic stability improves if real interest rates are kept smoothly below growth rates...
The Revised Liquidity Management Framework the RBI put forth in February 2020 but kept in abeyance due to the Covid crisis may be dusted off as the surplus liquidity due to Targeted Long Term Repo Operations wind down this month...
When inflation targeting as suggested by the Urjit Patel committee helps India to be the fastest-growing economy from the fragile five, it may be time to implement its second phase of moving to 14-day term repo for liquidity operations...
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