The US Fed’s actions can inform RBI policy but mustn't drive it
livemint.comThere is more than one way to skin a cat," goes an old English proverb, which means that there are many ways to accomplish the same task. In central bank-speak, the equivalent would perhaps be: “There is more than one way to effect a soft-landing," that holy grail of central banks the world over. For, going by their actions, especially in recent times, there is no single path to getting there.
Take the US Federal Reserve that as recently as 31 July opted to stay put (for the eighth time in a row) and keep the Fed funds rate, at which banks borrow in the inter-bank market, at a 23-year high of 5.25-5.50%. Meanwhile, just the day before, the Bank of England (BoE) cut its policy interest rate—its first cut in more than four years—to 5%. That’s not all.
While the decision of the US Federal Open Market Committee was unanimous, the BoE’s monetary policy committee (MPC) had its dissenters. It finally voted by a 5-4 majority for a 25-basis-points cut from its 16-year high rate of 5.25%, with governor Andrew Bailey saying that it would move ahead cautiously, which suggests that the next rate cut would take a while. In contrast, Fed Chair Jerome Powell is on record that the US central bank must gain greater confidence in inflation moving towards its 2% target before easing policy.
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