New Delhi, June 1 -- As the Reserve Bank of India's Monetary Policy Committee's rate review approaches, raising the policy rate is on the table. Underlying inflation pressure has risen with the global energy shock, the rupee has sold off, and capital outflows have been substantial.

Higher rates could support the rupee by raising returns on Indian rupee debt, and by increasing the cost of borrowing in domestic currency, speculative short positions could be discouraged.

RBI is not alone. Central banks of Indonesia and the Philippines have already begun tightening monetary policy. Nuances, however, matter. Bank Indonesia's policy mandate explicitly includes rupiah stability that could convince the central bank to tighten policy if the curr...