Business Standard: Confronting macroeconomic trade-offs
(This article appeared in Business Standard on October 20, 2026, link here: https://www.business-standard.com/opinion/columns/confronting-economic-trade-offs-126101901225_1.html ) Market -driven prices and tax reforms can support monetary policy and attract foreign capital In a difficult global environment, interest rates have risen, the rupee has weakened, and net foreign-capital flows remain uncertain. It is worth looking at the takeaways from the recent past to consider the road ahead. What happened? With consumer inflation averaging just 2 per cent in 2025, the Monetary Policy Committee (MPC) cut the policy repo rate by 125 basis points to 5.25 per cent. In financial year (FY) 2025-26, the Reserve Bank of India (RBI) also bought government bonds worth 2.5 per cent of gross domestic product (GDP) to support growth and replenish liquidity drained by foreign exchange outflows. These record RBI bond purchases were 70 per cent higher than those in...