When all most of us are worried about interest rates and how The RBI is fighting a spike in bond yields, it has quietly sent a message on its currency policy. It can’t handle the `impossible trinity’ anymore.
This may well be the turning point in the adoption of policy tools. In a note announcing the `Measures to Foster Orderly Market Conditions’, the central bank has slipped in a message that it is worried about inflation and it won’t hesitate to use measures other than interest rates to fight price pressures.
The recent appreciation of the rupee is working toward containing imported inflationary pressures,’’ said RBI in the note, which was dominated by measures to contain the bond market volatility.
When RBI openly accepts that currency appreciation is helping achieve one of its key goals of inflation management when its hands are tied, it is an acknowledgment that the objective of currency operations has evolved beyond just tempering the volatility.
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