RBI's dual-track policy imperative

With domestic demand conditions robust and inflation being fed by strong growth, rising oil, and falling rupee, the central bank has to take measures to keep inflation expectations anchored

Formidable external and domestic challenges characterise India's macroeconomic outlook. On the external front, three distinct developments require vigilance. First, oil, India's perennial Achilles' heel, is on the ascendancy, complicating the current account, fiscal, inflation, and exchange rate dynamics. Crude oil prices are up about 25% this year, and the risk is once Iran sanctions are put in place and supply from Saudi Arabia and Iraq fall short, prices could jump another 10-20% in 2019. The government's attempts to hold back imports through higher duties is laudable, but given the relative inelasticity of energy import demand, the risk is that the