With risk events becoming increasingly interconnected and non-linear, the Reserve Bank of India is operating in an environment characterised by a wider range of possible outcomes. Factors such as oil prices, geopolitical developments, global yields, currency movements and weather-related events, including the El Niño phenomenon, have also unfolded concurrently.
These developments have generated volatility in bonds, FX and capital flows, alongside feeding into inflation expectations and imported price pressures. In this environment, policymakers may be compelled to react not only to the central or baseline forecast, but also to the potential for a broader range of outcomes.
