 "Illustration: Ajay Mohanty")
The RBI’s main objective is to deliver a consumer price index (CPI) rate of 4 per cent. It also has two other objectives: Exchange rate policy and public debt management. There are interesting tensions shaping up between these objectives. High interest rates can defend the exchange rate and ensure adequate sale of government bonds, but that will slow down the economy and give inflation of below 4 per cent. Monetary policy in the coming year will be about dealing with these contradictory impulses.
From its creation in 1934 till February 2015, the RBI had no well-specified objective. This created confusion. The
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