Real question for the RBI: When to raise the rates and by what extent

Barring external shocks of which this government has been a persistent victim since 2019, things should pan out well by April 2024

Recently, something written by Bloomberg-Quint’s Ira Dugal, who is one of the best financial journalists India has currently, reminded me of Rudiger Dornbusch who was arguably one of the best macroeconomists of the 1970-2000 period. He died in 2002. 

I had the opportunity to interview him in 1992 or 1993 when he was passing through Delhi. Dornbusch, for those who don’t know his work, was the one who came up with the theory of overshooting in the forex markets. 

Basically, he said, while some parts of an economy adjust almost instantaneously to changes in some exogenous variable, most parts don’t.