India’s Finance Ministry continues to tread on dangerous ground by becoming increasingly vocal in its calls for further monetary easing. Most recently in an interview over the weekend, Finance Minister Arun Jaitley stated that “common sense says that rates should come down”. While there is still a case to be made for further – albeit limited – monetary easing, it is by no means clear cut and, in any case, such comments from within the government risk damaging the Reserve Bank of India’s independence. Any loss of credibility at the RBI could lead to a rise in inflation expectations, and jeopardise its chances of lowering inflation over the medium term.
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