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RBI's Hamletian dilemma

The relationship between monetary policy and inflation is not reliable in a crisis, creating a classical problem for the central bank

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illustration: binay sinha

5 min read Last Updated : Jul 28 2020 | 1:19 AM IST

With the pandemic eating into the growth impetus of the Indian economy and associated supply shocks pushing up the inflationary pressure, the inflation targeting regime of the Reserve Bank of India (RBI) could be on the horns of a dilemma in the near future.

Depending upon the extent of adverse impact of the ongoing Covid-19 pandemic on the real and financial sectors, the economy may warrant loosening of the monetary policy, but if inflation — primarily emanating out of adverse supply shocks— goes out of control, then further easing of monetary policy could appear to be counter-productive. Thus, there are

Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper

Topics : Inflation Reserve Bank of India monetary policy International Monetary Fund

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