3 min read.Updated: 17 Jun 2022, 12:06 AM ISTV. Anantha Nageswaran
Developing economies also have to face the music for rich-world monetary expansions gone awry
The US Federal Reserve has raised its federal funds rate by another 75 basis points. It appears on course for an encore in July. Given its determination to tame inflation, it is good that the Reserve Bank of India (RBI), despite a slightly later-than-desirable start, has displayed resolve in raising its policy rate, including an inter-meeting rate hike. Some have called its inflation forecast revision for India from 4.5% to 6.7% in a span of a few months a sign of flying blind. There is another way of looking at it. Having realized that its inflation forecast was out of line with emerging reality, RBI wasted no time in raising it. That shows intellectual openness. Second, we should recall that the consensus forecast of professional forecasters in 2022-23 was 5.0% while RBI’s was 4.5%. Not much of a difference. Third, there is the minor detail of a major geopolitical conflict that broke out in late February that upended inflation forecasts globally; so blaming RBI for a mis-forecast is a bit rich.
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