MPC yesterday - Bollywood Policemen & the Camel's Nose-ring
The MPC’s role yesterday was like that of the policemen who arrive at the climax of old Hindi movies, after the battered hero has singlehandedly managed to subdue the villains. There is no dearth of macroeconomic villains today – widening twin deficits, uncertain global environment, and inflation fears to name a few. However, by rising by over 60 bps since the last policy, the bruised bond market had pretty much done the MPC’s job for now. For its part, the MPC delivered – it didn’t waste any needless bullets, and it stuck to its script. It came across as calm and balanced, and gave perfectly reasonable projections for CPI (5.1% for this quarter, 5.1%-5.6% for H1 FY19, and 4.5%-4.6% for H2 FY19). That seems to indicate that they would look through spikes in inflation, much as they looked through dips in mid-2017, as long as the market (and the hero) behaves. The MPC has been truly flexible, and used the +/-2% leeway well. Eye of the beholder One section that stood o