What central bankers say is often as important as what they do. The overall tone of the annual monetary policy that was announced on Tuesday by the Reserve Bank of India (RBI) is distinctly hawkish.
A comparison between what RBI said in April 2007 and what it said this time around is instructive. There were the usual homilies—on the need to maintain growth, promote financial inclusion and protect market stability—in both policy statements. But, the new one had two subtle changes that tell us a lot about RBI’s state of mind in these inflationary times.
First, the central bank is no longer content to say it is “reinforcing an emphasis on price stability”; it speaks of the “high priority to price stability (and) well-anchored inflationary expectations”.
Second, governor Y.V. Reddy said he is ready to use “both conventional and unconventional methods” to fight global shocks as well as domestic inflation. The ammo seems to be ready.
The upshot: It ain’t quite over as yet.