How Covid-19 disruptions and food inflation have worsened RBI's trilemma

In India, with supply chain disruptions and food prices pushing inflation stubbornly above target, handling the trinity is looking tougher

One of the toughest challenges central bankers face is how to navigate the “Impossible Trinity” -- maintaining monetary policy independence while allowing a steady flow of foreign capital and keeping a stable currency.

Also known as the “Trilemma,” it’s the bane of emerging markets from Argentina to Turkey. Cut interest rates too far and risk scaring off foreign capital, sending the currency tumbling. Raise borrowing costs too much to fight inflation and funds rush in, sending the currency higher and strangling exports.

In India, with supply chain disruptions and food prices pushing inflation stubbornly above target, handling the trinity is