In the face of such uncertainty in determining the temporary or permanent nature of inflows, is it justified to blame your central banker if, out of prudence, he assumes that the flows are temporary until their permanent nature can be established? There are some underlying similarities in the challenges faced by India and Mauritius in the face of capital inflows.
The experience elsewhere suggests that we do need to guard against inflation expectations falling too far, for if this were to occur it would be more difficult to achieve the inflation target. Of course, one of the key influences on inflation expectations is the actual outcomes for inflation. We will get an important update next week, with the release of the September quarter CPI.