Higher inflation was tolerated only to protect growth because of the major shocks of the past few years. An inflation targeting regime where the nominal repo rate responds to expected inflation to ensure appropriate real repo rates is adequate to credibly anchor inflation expectations. An appropriate real repo rate is required, not a high nominal repo rate .
The objective of monetary policy is to control inflation with as little growth sacrifice as possible. The current real repo rate is close to 1.5% based on projected inflation 3-4 quarters ahead. At this level, there are worries about the extent of demand destruction that it will cause and the consequent damage to economic growth.
Inflation expectations may have moderated, but firm demand in the economy could fuel cost and price increases unless supply conditions are flexible enough, Shashanka Bhide, an external member of India s Monetary Policy Committee (MPC), tells Bhaskar Dutta.
When capital comes, it normally comes in all forms. You will have different asset managers doing different things, but I think the country will be attractive overall. That s obviously qualified by what s happening with rates in India at that point and what the expectations for rates are and for the exchange rate as well.