We have been mandated by the government, backed by legislation, that we have to have an inflation target of about 4%.
People were holding high denomination notes to keep tax unaccounted for money. Some sectors like real estate were using cash to avoid tax.
The two important variables for the policy formulation are projected inflation and the output gap. There is no clear hidebound mathematics that we must give 'X' weight to inflation and 'Y' weight to growth and form the associated policy.
Large credit guarantees also impede optimal allocation of financial resources and increase moral hazard.
There is little room for complacency, and it is important to guard against sporadic volatility in financial markets.
A well-functioning transmission should at some point go from the overnight right up to 40 years, and that is the ultimate objective in having monetary transmission that affects the whole gamut of borrowing tenure.
The materialisation of reforms in the form of rollout of the GST, the institution of Indian Insolvency and Bankruptcy Code, and the abolition of the Foreign Investment Promotion Board should boost investor and investment confidence.