The unanimous decision of a RBI pause is a tactical one a fine balance between looking forward optimistically and glancing back in the rear-view mirror to gauge the impact of previous coordinated actions. Interestingly, the RBI decision to pause is reminiscent of the reputation equilibrium in monetary policy (Barro & Gordon, 1983), where the policy outcome is a combination of discretion and rules in policymaking!
We believe that this decision is justified on two counts.
First, this policy action has clearly indicated to the market that the central bank is comfortable with making a distinction between policy strategy and policy stance, and these can coexist simultaneously. While a policy stance may indicate the RBI using more of non-conventional policy tools to adjust large government borrowings forthcoming in May, with no change in liquidity stance, the policy strategy still indicates rate adjustment should inflation surprise on
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