Governor Subbarao’s trilemma

..... Formalized or not, RBI will likely continue to balance price stability, financial stability, and fiscal sustainability. And this means more of the corridor approach to policy. As long as growth, inflation, bond yields, and the exchange rate remains within RBI’s tolerance levels, policy instruments will all be used simultaneously and adjusted in modest steps to keep the objective variables within limits. But if any of the target variables breaches its benchmark, the policy regime will shift to target the recalcitrant variable. And if that means pushing other variables over the edge then RBI will not hesitate to use unconventional force of its own.

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