On the surface, the Reserve Bank of India's unanimous decision to hold the repo rate at 5.25 per cent looks like an act of patience. It is closer to a substitution. One must realise that the RBI's mandate is to control inflation, not the exchange rate, and Governor Sanjay Malhotra was careful to repeat that the rupee's level is for markets to decide.

But a falling currency raises the cost of everything India imports, oil above all, and that eventually shows up in prices. A central bank cannot ignore it. What the RBI has done is decline to answer the rupee's slide with the policy rate and answer it with borrowed dollars instead.

Policy Choice Examined

On its own terms, the hold is defensible.........

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