Why the MPC should slow its pace of tightening
- Comparisons with targets and past 10-year averages show inflation in India is less of an outlier than in many rich economies.
The six members of the Indian monetary policy committee (MPC) are scheduled to meet early next month to decide the next move in policy interest rates. They have quite correctly increased the benchmark repo rate by 190 basis points since May, as a recovery in economic activity allowed policymakers to focus more on the challenge of rising prices. Monetary conditions have also become tighter since the evaporation of excess liquidity in the money market, led by a sharp fall in foreign exchange reserves. The Indian central bank was perhaps a bit slow to pivot towards a greater focus on inflation, but that can be said about many of its peers across the world.