The RBI has given way to the exigencies of the government and politics before. Will it do so again?
Back in February, when India was still in denial about its brewing inflation challenge, economists at Nomura Holdings Inc. summarized the choices before the monetary authority into three neat boxes. First, they said, there was a 15% probability that the central bank was right to ignore supply-side pressures. But their base case, to which they assigned a 50% likelihood, was that the Reserve Bank of India was wrong and it would have to pivot to containing price increases. They did consider a third possibility to which they gave a fairly significant 35% chance: that the RBI, although wrong about inflation, would simply go on to tolerate it.