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Why Shaktikanta Das can't afford to follow other central banks' Covid playbooks

BCCL

After raising the inflation forecast, Governor Das said that there is ``some evidence that price pressures are spreading.

Synopsis

India’s flexible inflation targeting introduced four years ago ties the central bank’s hands when it comes to interest rates as it is mandated to target the Consumer Price Index at 4 percent in a two percentage band on either side. To make its policy effective, the central bank kept liquidity in deficit. That has now turned to a surplus, estimated at Rs. 8 lakh crores.

MUMBAI: More often than not, stocks have fallen when the Reserve Bank of India cut interest rates in the past. But on Friday, when Governor Shaktikanta Das did nothing, stocks soared to a lifetime high. The reason? Liquidity!India’s central bank joined monetary policy makers across the world who are keeping interest rates at near zero and printing money, but unlike the developed markets India can’t afford to keep lowering rates, thanks to price

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