The RBI has just one function, no trinity.

Robert Mundell was awarded the Nobel Prize in Economics for his work on the 'impossible trinity' for central banks, wrote Prof Amol Agrawal. "He said that policymakers can choose any two, but not all three, macroeconomic objectives -- foreign capital mobility, fixed exchange rates and inflation management." "The United States (US) chose inflation and foreign capital mobility and kept exchange rates flexible maintaining the status of the US dollar. China chose inflation and fixed exchange rates to keep its exports competitive while keeping capital controls." The Reserve Bank (RBI) is choosing to ignore inflation and keep bond yields at or below 6% through abundant liquidity to keep borrowing costs low for the government. Last month the Indian government "kept the inflation target of the monetary policy framework unchanged at 2-6 percent for the next five years, until the fiscal year 2025-26", Business Standard. Flexible Inflation Targeting (FIT) is useless in India according to a group of economists at the International Monetary Fund (IMF), wrote Prof VA Nageswaran. Inflation rate was coming down even before FIT, inflation was falling in countries without FIT, India's consumer price index (CPI) is weighted heavily by volatile food prices and economic growth has been hurt by high interest rates. Average retail inflation was over 8% from 2008. Interest rate started rising from 2010 and reached over 8% in 2012 following which the rate of inflation started falling from 2013. India adopted FIT in 2016. A recent working paper by the RBI recommended that inflation target should remain at 2-6%, which the government agreed to, Business Today. The same Nageswaran has been warning us of 'mother of' asset price bubbles because of negative interest rates and quantitative easing in the US and Europe. Is India immune from bubbles? "Remember, RBI is not the mighty Federal Reserve," warned Mythili Bhusnurmath. "Monetary policy in India, as in all emerging markets, is critically dependent on the actions of the Fed, the de facto global central bank. If the Fed were to tighten monetary policy earlier than anticipated, RBI would have no alternative but to do likewise." "The hope is that low rates of interest will incentivize investment and, thereby, growth." "Savers, it would seem, are best advised to fend for themselves. This is a dangerous game. Savings are the bedrock on which lending is done, and lasting damage to savings, especially household savings, could prove costly." In an effort to push yields lower "The RBI on Friday called off government securities (G-secs) auction worth Rs 14,000 crore for the benchmark 10-year bonds as traders demanded higher yields," Times of India (TOI). The higher the price of the bonds the lower the yields, so the RBI is trying to force traders to pay a higher price and take a loss if prices fall because of higher interest rates in the future. "The difference between the repo rate and government's borrowing cost, say on a 10-year loan, is called the term premium," wrote Neelkanth Mishra. Mishra thinks the bond market is dysfunctional because the cost of mortgage on a house is lower than the government's borrowing cost, though government bonds are totally safe. He seems to have forgotten that the rupee is vulnerable to inflation. House prices tend to go up with inflation but the value of government bonds will fall if the rupee falls. Mishra would like the RBI to sell bonds directly to retail investors to bring down borrowing costs for the government. When yields are being artificially suppressed by the RBI, isn't that cheating? Inflation has been kept in check because of FIT and FIT keeps a check on central bank policy to prevent excessive risk taking, wrote Prof Vidya Mahambare. The RBI has no impossible trinity. Just transfer money from savers to the government. Simple.