Late Tuesday morning provided a moment for Indian democracy to savour. News services and TV tickers said RBI keeps key rates unchanged. Recall the run-up to RBI’s big show on Tuesday — policy shouldn’t be presented in such showbiz fashion, but that’s an issue deserving separate treatment. RBI had decided that the exuberance in the economy was irrational. Interest rate hikes, frequent and even on weekends, were supposed to inject rationality. Many protested, including this newspaper. The protesters had a strong case. First, inflation was rising but seemed to have a statistically illusory component (the point to point WPI’s denominator, last year’s figure, is higher April onwards; lower denominators earlier had boosted inflation). Second, supply side problems that monetary policy can’t tackle were driving prices. Third, that capacity increases are in the pipeline and that they can address some of these supply shortfalls was ignored. Fourth, RBI’s hypocrisy: flooding the system with liquidity to hold the rupee and choking the system of affordable credit to hold the priceline. Fifth, the rate hikes are deeply iniquitious: small borrowers and businesses, without access to alternative credit, are hit hard. Therefore, and sixth, anti-inflation orthodoxy being pro-aam aadmi was shown up as a cruel joke.

But up till now, RBI hadn’t listened. It had behaved pretty much as it did in 1995, when a similar monetarism-on-Viagra had derailed the economy. Why it did it budge on Tuesday? Because the word from the street had reached Mint Street. Ordinary borrowers were being penalised for a crime no one seems to have committed. Noise had filtered into the ivory tower. RBI had to take note of vox populi. Even more than foreign policy, monetary policy enjoys the principle of being the preserve of a select few. But in democracies, especially in economically aspirational democracies, when a select few call it wrong and their decision impacts economic futures of many, corrections are must. To see that happen is not politicisation of monetary policy. It’s democratisation of a crucial debate.

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