Given this response, further tightening is clearly not on the cards for tomorrow. At worst, the status quo might be maintained. The RBI does not typically revise its growth and inflation forecasts in the first quarterly review, preferring to wait until half the year has passed. However, given the unusual context this year, it would be very helpful to stakeholders to get the RBI's assessment of the impact of its actions on growth and inflation at least, not to mention the exchange rate, interest rates, the government's overall cost of borrowing and, importantly, non-performing assets of banks. But, beyond these, the most important signals that stakeholders will be watching out for relate to the RBI's articulation of how long it expects to persevere with this new regime and what it would be watching out to feel secure enough to go back to normal. The prime minister has already said publicly that the measures are temporary, but whether the RBI will agree with this view or argue along different lines is the question.
More importantly, while this is outside the domain of the quarterly review, policy makers have to urgently come to grips with the pressures on the current account deficit, which is the fundamental cause of exchange rate problems. Absent any signs of this, the RBI's recent moves highlight the fact that the conventional growth-inflation trade-off has now morphed into a growth-exchange rate one. Monetary measures that are used to stabilise the currency are in today's scenario essentially antagonistic to stimulating growth. If the decision is indeed to give primacy to the exchange rate, the growth rate will be the obvious casualty. Notwithstanding governmental reassurances about a commitment to reviving growth, the stark fact is that it appears to have become something of an orphan as far as policy objectives are concerned. This cannot be good for anybody. The whole policy establishment must take responsibility for both growth and the exchange rate, together.