As the MPC set about its first meeting, the accommodative cycle of monetary policy in India that commenced in January 2015 was maturing, with the policy rate having been reduced by a cumulative 150 basis points already. Yet, the ground underneath was moving. Macroeconomic and liquidity conditions were about to undergo tectonic shifts.
The combination of a stronger than usual seasonal spike in vegetable prices, highly elevated pulses prices and international crude prices firming up from a recent trough, veered inflation up from its projected path during April-July 2016, even as growth slowed.