RBI vs the Fed.

In his speech at Jackson Hole, new US Federal Reserve Chair Kevin Warsh "made two things clear: One, it is the 'Fed's job to deliver stable prices,' And two, with US inflation running above its 2% target, the central bank's 'predominant focus right now should be on prices'." "In India too, when it comes to inflation, the buck stops with its central bank under the regime we adopted a decade ago." Mint. The Consumer Price Index (CPI) inflation rate in the US was at 3.4% year-on-year in August. bls.gov. "India's retail inflation has accelerated to 4.82% in August 2026 from 4.45% in July, as food prices and other key components of the consumer basket exerted pressure on the economy." Actually, food inflation was relatively less to blame at 5.95% and could be partly caused by the transport services for goods at 14.64%. Personal care, social protection and miscellaneous goods and services went up by 15.17% while "inflation in other personal effects stood at 44.56%." ET. "India's wholesale prices rose 9.92%year-on-year in August," with manufactured products up by 8.37%, fuel and power by 22.93% and petroleum and natural gas by a whopping 34.41%. Producer prices in August rose 9.8% y-on-y, according to Reuters calculation. In the Wholesale Price Index (WPI), with 2022-23 as the base year, the weight of Primary Articles is at 22.62%, fuel and power at 13.15% and manufactured products at 64.23%. Anantam IAS. "The Producer Price Index (PPI) "reflects the cost at which goods are sold at the production level before they reach consumers. The PPI covers a wide range of sectors, including mining, manufacturing and agriculture." Bajaj Finance. If input prices as reflected by the WPI and wholesale manufactured prices in PPI are rising at near double digits its only a matter of time before retail prices rise by at least the same amount, or by even more as retailers add their own profits when selling to consumers. "There has been a growing body of evidence that wholesale inflation tends to move towards consumer inflation during episodes of divergence. And headline consumer price inflation moves towards core inflation when there is a substantial gap between the two." Core inflation was at 3.9% in July, wrote Niranjan Rajadhyaksha. The Reserve Bank of India (RBI) undertook to cover hedging costs as it asked Banks to borrow foreign exchange by promising higher interest to non-resident Indians (NRIs).  "Banks have received $127.3 billion in FCNR(B) deposits since June, marking a strong response to the RBI's scheme and taking total inflows to $136.4 billion." MC. It was necessary because, "net foreign direct investment has collapsed from $44 billion in 2020-21 to virtually zero. Foreign portfolio investors pulled out nearly $29 billion from Indian markets in 2026 alone, on top of $18 billion the previous year. The rupee was weakening fast." But, "These dollar inflows, converted to rupees, have contributed to a record surplus, close to Rs 10 trillion in the banking system. To prevent this from fuelling inflation or reckless lending, the RBI must mop it up by selling government bonds. That pushes bond prices down and yields up, raising the government's own borrowing costs, of which the interest cost is already at a staggering 40% of all revenues," wrote Ajit Ranade. The RBI's refusal to increase interest rate, to keep government borrowing costs low, has led it to such expensive maneuvers, which will lead to higher yields on GOI bonds, which means higher borrowing costs. The RBI may think it is in control but Kevin Warsh can overrule it. "The 10-year (US) Treasury yield fell slightly to 4.994% after rallying as high as 5.03%. in.investing.com. The Fed could make all RBI's efforts useless. Who will pay for this folly? The hapless taxpayer.