Today, even as you read this, RBI's Monetary Policy Committee (MPC) is sitting down for another 3-day meeting to decide how best to square the circle. In plain language, it must decide how best to appear confident about the future trajectory of growth and inflation while framing policy. It faces a stark choice: hold rates steady and risk a more persistent inflation problem or raise rates and risk choking growth.
From a Goldilocks moment to a perfect storm. That's been the story of the economy in recent times. So, over the next 2 days, MPC must mull over what explains the metamorphosis: domestic factors or external ones? As the committee responsible for monetary policy, did its actions contribute to where we find ourselves today, with growth falling and inflation rising? And, following from that, what, if anything, can it do now?
