'Sticky inflation' complicates central bank decision-making. Explain with reference to recent global monetary policy trends and implications for the RBI's Monetary Policy Committee.

Sticky inflation is inflation that stays above target even after repeated rate hikes. It usually comes from slow-adjusting services prices, wages and supply shocks. It weakens the central bank's main tool, the policy rate, and forces a hard trade-off between supporting growth and protecting credibility.

Why sticky inflation complicates decisions

• Weak transmission: Higher rates cool demand but do little to supply-driven or wage-driven prices. Holding rates high for too long hurts growth, while easing too early risks inflation coming back.
• Expectations risk: A premature cut can de-anchor inflation expectations and damage credibility that took years to build.
• Diagnosis problem: Policymakers must first judge whether the shock comes from demand or from supply (oil, conflict), because each needs a different response.

Recent global trends

• U.S. Fed (Oct 2026): It held the Fed Funds range at 3.75%–4.0% by a 10:2 vote. Both dissenters wanted a 25 bps hike because of sticky inflation [1]. This points to "higher for longer" rates.
• Institutional rethink: The Fed will hold fewer FOMC meetings from 2027, and one of them will deal only with policy strategy [1].
• Shock type matters: IMF work shows that a pure policy tightening and positive growth news spill over in opposite directions [2]. An inflation-driven hold is the less friendly kind for emerging markets.

Implications for the RBI's MPC

• Limited room to cut: If the RBI cuts while U.S. rates stay high, the interest-rate gap narrows. That risks FPI outflows and a weaker rupee. The MPC held the repo rate at 5.25% in April 2026 and noted rupee pressure from oil prices, outflows and a strong dollar [3].
• Imported inflation: A weaker rupee makes oil and other imports dearer, which feeds stickiness at home.
• Bond-yield spillover: U.S. policy moves emerging-market local-currency yields mainly through term premia [4]. This can raise G-sec yields even if the repo rate does not change.
• Buffers have limits: Forex reserves covered 10.8 months of imports at end-December 2025 [5], but they shrink when used to defend the rupee.

Way forward

• The MPC should state which type of shock it is facing and give clear forward guidance.
• FX intervention should be used only to smooth excessive volatility, not to target a level [5].
• Fiscal discipline and a low current account deficit (CAD) shrink India's external exposure.

Sticky inflation therefore makes monetary policy a careful balancing act, shaped by external conditions as much as domestic ones. If the MPC stays anchored to flexible inflation targeting under the RBI Act, 1934 (amended 2016), and the government keeps the macroeconomic fundamentals sound, India can protect price stability without giving up growth.