It was becoming increasingly clear over the last few weeks that both the finance ministry and RBI were finally in agreement that high inflation, rather than slower growth, was the Indian economy’s main problem. This newspaper has been arguing on these lines for at least three months.
So an increase in the cash reserve ratio to cool the economy was anticipated. That the central bank decided not to wait for the monetary policy announcement due later this month signals how serious the problem is. A hike in the repo rate on 29 April is still a possibility.
One concern, though. The central bank says it moved out of turn in response to higher inflation expectations. This, rather than a rise in street-side prices, can be a longer-term threat to an economy. It’s high time RBI started publishing more data on inflation expectations, so economists and the bond market know what sort of numbers they are looking at.