Both bond and stock markets were waiting with bated breath for RBI Governor Shantikanta Das to indicate if inflation was going to be more important or growth on the morning on December 4. While nobody expected policy rates to be reversed, the market was watching every word that could indicate the central bank was turning hawkish – an experience of past pain when earlier RBI governors pulled back just when the economy needed some more continued oxygen of liquidity.
Monetary policy is charged with keeping the flow of the gas of money to the economy at a ‘just right’ reading. Too high a flame will cause irrational exuberance that results in inflation. Too low makes the economy sluggish with growth suffering. Remember, money is the gas that the economy needs to fuel working capital, project finance, retail loans and also government spending and it is the job of the central bank to get this right.