The carrot and the stick

…..But perhaps rather than swapping the carrot of expected policy easing for the stick, and implied rebuke, of unchanged policy rates, RBI could maximize its increasingly limited room for manoeuvre by announcing a modest 25 bps repo rate cut while highlighting that any further rate actions await both the decisive action on subsides implied by the budget’s forecasts and an assessment of their inflationary impact. The decision is clearly finely balanced. What is clear, however, is that RBI has little scope for any significant easing of policy and that the radical reshaping of the policy mix that the Indian economy desperately needs can only be driven by fiscal policy rather than the central bank.

Read.........