Interpreting the new macroeconomic policy tightening

Overview

Following the post-crisis stimulus, macroeconomic policy in India has now switched back to tightening mode. This shift came in Finance Minister Pranab Mukherjee’s 26 February budget with its road map to fiscal consolidation and in the Reserve Bank of India’s unscheduled 19 March announcement of a 25 bps rise in its key interest rates. The question is whether the gradualist approach dictated by political pressures will suffice. Fiscal and monetary policies are closely linked on various...