RBI faces a delicate balancing act ahead of key monetary policy meet

It will be important for monetary policy not to inadvertently accentuate asset price inflation, financial exuberance and the associated financial stability risks that come with it

Over the last year, the Reserve Bank of India (RBI) has been resolutely focused on aligning headline consumer price inflation (CPI) to its 4 per cent target. This was both understandable and desirable. CPI inflation averaged 6 per cent for four years – between January 2020 and December 2023 – underpinned by the dual shocks of the pandemic and the war. To preserve the sanctity of the inflation targeting framework, it was crucial that once the economy began to recover from these shocks, the central bank would double down on aligning the CPI close to the point