Fiscal dominance over monetary policy

The Reserve Bank of India (RBI) Governor, Dr D. Subbarao, while addressing the Second International Research Conference (SIRC) organised by the RBI on February 1, raised concerns on the ‘new trilemma' — price stability, financial stability and sovereign debt sustainability. In this context he has raised a pertinent question, “Are we seeing a return of fiscal dominance of monetary policy?'' In the Indian context, the answer is ‘yes'.

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