Monday, Sep 26, 2022
Outlook.com
opinion

A Sharing Of Instruments

RBI’s new brief to curb inflation comes with a cut in its independence

A Sharing Of Instruments
Jitender Gupta
A Sharing Of Instruments
outlookindia.com
-0001-11-30T00:00:00+05:53

Like many other things, the Reserve Bank of India has come late to the party. And it has celebrated with a rate cut. Announced on Wednesday morning, outside its usual, scheduled policy review cycle, the RBI cut the benchmark rate by 25 basis points. This is questionable.

What’s curious is the timing: it seems to indicate that the RBI is returning a favour to the government for having signed the monetary policy framework agreement. Signed between the RBI and the Union finance ministry on February 20, it enjoins the RBI to bring inflation—as measured by consumer price index (CPI)—below 6 per cent by January 2016, and thereafter strive to keep it at 4 per cent (with an error margin of plus/minus 2 per cent). Any deviation will be considered a failing, requiring an explana­tion.

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