Govt should increase inflation target; let RBI balance external accounts

Ignore the rating companies' (and the panel's) views on public debt and deficits.

Nobel Laureate Robert Mundell had coined the expression “impossible trinity” in the 1960s (when cross-border capital flows were far smaller compared with today’s) while arguing that a liberal capital account, an independent monetary policy and managed exchange rates cannot co-exist. One wonders whether we are in the process of trying to work an “impossible quartet” of macro-economic objectives and policies: Fiscal austerity; high real interest and exchange rates; solving the problem of bad debts of the banking system; and pursuing rapid economic growth and job creation.  

As for exchange rate and growth, last week the Swiss central bank blamed