“If I aim for high growth and high inflation, I am sunk. I will not be politically in trouble if my growth rate slows down to 8.5 to 8 per cent. I will be in greater trouble if my inflation rises to 6 per cent this year.” finance minister P Chidambaram at Davos on January 25.

Four days later, RBI governor Y V Reddy effectively told Chidambaram: “I won’t let you sink.” By doing nothing in the third quarter review of annual monetary policy for 2007-08, Reddy has changed RBI’s currency, from economics to politics. In a country that’s barely begun to understand the macroeconomic, strategic, financial and, of course, political implications of growth, Reddy’s prescription this quarter is once again yesterday’s pill.

Just what has Reddy done? In a word: Nothing. True, balancing growth and inflation, currency and credit is not easy in these times when volatility is high not only in financial markets but in the global flow as well. As a result, by leaving all monetary indicators — CRR, repo, reverse repo and bank rate — unchanged, Reddy’s inflation focus, borrowed from finance minister in particular and the Manmohan Singh administration in general, has taken the pride of place.

In English that means: interest rates on home loans, car loans, consumer loans, personal loans will remain where they are. It means entrepreneurs, particularly smaller ones, will continue to pay high interest rates on money borrowed to run enterprises. It probably means debt-backed new enterprises will pause for breath. Which implies that growth rate of new jobs will slow down. Which finally means, the markets, reeling from a US downturn will have nothing to look up to here.

... contd.