A small summary of monetary policy analyses is necessary before expanding this argument. As some of the commentators in The Indian Express and The Financial Express — Ila Patnaik, Bibek Debroy, Ajay Shah, Jaithirth Rao, Saugata Bhattacharya — have been arguing, consistently and sharply, that while it is no one’s case that inflation is good news, agreeing with RBI’s inflation management is bad economics.

The following points can be distilled from these analyses. First, central banks don’t have oracular powers. Second, we need to question why RBI isn’t more transparent about its non-headline making monetary policy interventions. Third, we need to ask whether RBI acted at the right time and in the right manner in fighting inflation. Fourth, because of the first three, the economy has sacrificed much more by way of interest rate increases, and therefore growth potential, at a time India appeared close to upgrading its medium-term growth trend.

In terms of home loans, these points can be distilled further into asking why so many Indians have been saddled with higher repayment obligations that would have been at least partly avoidable had RBI acted differently and why so many more potential home loan customers than is necessary are getting priced out.

RBI has to change because these are economic analysis-backed simple questions asked by simple people. We should either have an RBI that doesn’t engender such questions or an RBI that can be asked such questions via clear institutional means. The issue has never come up with this much force since the British colonial establishment appointed Sir Osborne Smith as RBI’s first chief in April 1935. But one little-recognised fallout of economic reforms has been the expansion of the scope of public inquiry into policy-making.

... contd.