Flexibility Is Key For Monetary Policy As Economic Landscape Evolves

The MPC meet will now assess tariff impact on growth-inflation and markets

- Rajni Thakur

There is never a dull day for monetary policy makers, and yet, what works best for everyone alike is a good, predictable, and boring monetary policy. If only the financial markets would let the boring track stay intact.

As the Reserve Bank of India's (RBI) monetary policy committee (MPC) gears up for its next meeting from 4 August to 6 August, the key considerations were aligned in an apple cart order. Inflation battle won for now, monetary policy support already frontloaded, growth momentum starting to pick up, and general optimism for the second half of the year building up. One would assume that August MPC could very well be focused on a 'wait and watch' approach while all the previous support takes root in the economy and the central bank fixates on ensuring fast transmission.

Just when almost everybody was done hazarding views on RBI's rate action next week, the Trump tariff has thrown in its hat in the ring. Now, instead of a meeting to assess the efficacy and transmission of previously frontloaded monetary policy support and the rate decision thereof, we have a monetary policy committee that's meeting to assess the impact of newly-announced tariffs on growth-inflation dynamics and markets. Everyone is leaning in with anticipation for their assessment.