Understanding the inflation hawks

Until there is a clear sign of a structural decline, RBI should remain cautious

The headline inflation is currently benign and various measures of core inflation suggest that there has been an underlying disinflation since Q2 2016. Credit growth is the lowest in decades and balance sheets are strained. Against this backdrop, the Reserve Bank of India’s (RBI) decision to change its policy stance to “neutral” from “accommodative” in February and the relatively hawkish April minutes might seem at odds with reality.

However, when seen through the prism of the four per cent inflation target, it is a rational move.

The central question is whether low inflation will persist. Our analysis suggests that the current benign