Reversing a year of stagflation

The Reserve Bank of India (RBI) surprised markets by holding its policy interest rate steady. And the RBI governor, Raghuram Rajan, came forward to explain the decision. Both were welcome steps. When growth is low and inflation is high - when in the midst of "stagflation" - the task of monetary policy is hard, the governor noted. The RBI, he said, could not single-mindedly pursue lower inflation; it also needed to care about growth. He could have added that higher rates would make little dent in inflation in the current situation.

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