Data source: RBI, JP Morgan presentation

 

Everyone is making a case for lenient monetary policy in 2013. The Reserve Bank of India (RBI), however, is not so sure. After all inflation continues to hover well above its comfort levels. Plus excess liquidity continues to slosh around in the global financial system. Nevertheless, the pressure from the government to stimulate growth may cause the RBI to relent. A look at inflation levels and short term interest rates around the world explains why lowering interest rate is so difficult for the RBI. After all, India is amongst few nations in the world where despite steep interest rates, inflation still outstrips short term borrowing rates (repo rate for India).