RBI’s December policy preview: On the horns of a dilemma
RBI has largely been following a data-driven and evidence-based approach in its pursuit of a contextually relevant Policy, a Policy stemming from the concerns at the time of formulation and an attempt to arrive at judicious Policy prescriptions. With an uncanny ability to connect the dots and draw meaningful inferences, it is not difficult to predict the shape of things likely to come as I have done repeatedly for the last several years.
But this time is different, the choices are not so stark and we are confronted with the cognizable Shakespearean dilemma of “to be or not to be”. No wonder, then, opinion about the Policy move is divided: some believe that a rate cut is necessary to shore up a flagging economy; others maintain that given the ravages of the inflationary spiral, an unchanged rate would best serve the objectives of the central bank.
Be that as it may, let me share my perception of the global cues and the macroeconomic setting. For, the decisions of the central bank are seldom made in isolation, in silo; they are part of a broader holistic framework, banking is India in microcosm. Let us hit the high spots for a comprehensive assessment and perspective.
Global scenario
The global economy is characterized by imminent uncertainty. It has been hit by geopolitical fractures, economic fragmentation, financial turbulence, significant central bank interest rate hikes to restore price stability, and a withdrawal of fiscal support amidst higher debt-to-GDP ratios and unsustainable debt dynamics. The US
