After starting his time as central bank governor with rapid-fire interest rate hikes, Raghuram Rajan has now left rates unchanged for eight months.  While his hawkish stance has been praised for helping bring India back from the brink last year, RBI watchers are now wondering when his next big move will be and asking: Is the immobile Mr. Rajan in a sweet spot or a rut?  Mr. Rajan’s press conference after the RBI policy meeting Tuesday suggested either conclusion could be true. He suggested he is cautiously optimistic about inflation but still thinks India has a long way to go.  What is becoming increasingly apparent is that the Reserve Bank may be slowly tying itself down with its own chains.  The path Mr. Rajan has set for Indian consumer prices for the next two years – and the implicit pledge to keep monetary policy tight until targets are hit — has so far helped the central bank to boost confidence about India and curb inflation expectations.  But some economists and executives are concerned that pinning monetary policy on inflexible targets could become counterproductive.  With inflation rates already easing to the levels Mr. Rajan has hoped to see by the end of the year, it may be time for him to consider cutting rates again, say some economists. Analysts at Capital Economics suggest that weak domestic demand is holding back the economy, and that a rate cut would help.  But the tougher inflation target the RBI has set for January 2016 will make it difficult for Mr. Rajan to cut rates too soon. He has said he will act to bring inflation down to 6% by January 2016, a mere 15 months from now, a target that some analysts think could be too ambitious, particularly if India’s economic growth starts to accelerate again.  “The RBI will have to keep interest rates at current levels to ensure that the growth recovery does not cause a resurgence of inflationary pressures,” said Nomura economist Sonal Varma in a note published after Mr. Rajan’s presser Tuesday.  The RBI also acknowledged that it is still far from its target for 2016.  “Turning to the medium term objective (of 6% inflation by January, 2016) the balance of risks is still to the upside,” the RBI said.  The governor said Tuesday that the RBI has to wait and see how the economy fares, and that he’s not bothered by the fact that his indications to the market could be interpreted in conflicting ways.  “We’re staying away from predicting how the policy will evolve going forward because it’s going to be data contingent,” Mr. Rajan said. “I’m not uncomfortable with people on both sides of the spectrum, which suggests that uncertainty is on both sides.”  In central banker speak, he seems to be saying that for now he isn’t sure where inflation is going, and he’s glad everyone else knows as little as he does.
RBI Governor Raghuram Rajan’s pledge to reconsider his stance when data become available may be evidence that the central bank is tying itself up in its own chains.