The focus of almost all the six members of the RBI MPC was largely around the rate action and whether there would be more rate cuts. One good insight that came from Poonam Kumar was that, going ahead, rate action should be purely data driven, rather than trying to give guidance on rate action. Most of the MPC members were of the view that the rates were now much closer to the neutral level. Prior to the pandemic, the repo rates were at 5.15%, and it is now almost back to those levels. Hence, one insight that emerged from the RBI MPC minutes was that the rate cut expectations should come down, and the RBI will also try to tune market expectations on those lines. 

In the last few years, the term “Goldilocks Effect” has become quite popular in monetary parlance. It is based on the premise that the economy could be in a sweet spot due to a combination of high growth rates and low inflation. However, RBI MPC minutes appear to be juxtaposing real GDP growth with inflation. In reality, it should be nominal growth juxtaposed with the rate of inflation. If the former is high and the latter is low, then it can be called the Goldilocks Effect. However, when we compare inflation and real GDP growth, the latter is already a function of low inflation; and results in double counting. 

The RBI MPC had reduced its inflation expectations by nearly 280 basis points between February and December. However, that appears to be more of a rear-view mirror effect. The inflation expectations are being lowered on the base of rolling inflation of the last few months. The bigger question; what is the trajectory of inflation? How much will inflation get impacted if crude prices were to bounce? How will India inflation get impacted if supply chain constraints were to come back again? And, what happens to Indian food inflation if there is a bad monsoon in 2026? These are pressing questions, but the inflation outlook on macros appears to be missing. 

While rates, inflation, growth, and liquidity are all important considerations, the bigger question is about the trajectory of the Indian rupee. At present it appears to be falling almost vertically. Most experts are admitting that the RBI intervention is only postponing the inevitable, but there is no gainsaying that things could have been a lot worse. What is needed at this hour is a solid game plan to defend the rupee from external attacks. That is nothing new. India was almost in a thankless situation way back in 2013, after she had been identified among the Fragile Five. However, a combination of monetary, trade and fiscal measures helped. That is the rupee-focus needed urgently!