Maintaining macroeconomic stability

The Covid-19 crisis has made the Indian economic policy environment extremely tricky. Decisions in the area of monetary policy, financial sector regulation, and fiscal policy over the next few quarters will have an enduring impact on the economy. In the context of monetary policy, headline inflation has been above the upper end of the target band for several months, which has created significant policy uncertainty. If it does not come down quickly, the monetary policy committee (MPC) would have to take remedial action. 

It would not be easy to increase interest rates when the output is contracting. The rate-setting committee would

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