The monetary policy committee (MPC), which sets the policy or repo rate, has to strike the right balance between assessing recent inflation trends and forecasting the future. Thus, the decision to cut the policy rate today ticks all the proverbial boxes. First, that monetary policy works both ways, hiking rates when inflation builds up and lowering it when inflation eases. Second, the assumption that monetary policy had to necessarily move in the opposite direction as fiscal policy, which underpinned many of the earlier policies, is not strong now. In a volatile world like ours, monetary policy cannot afford the languor of a Japanese tea ceremony.

Source: Mint February 07, 2019 16:52 UTC