India, June 16 -- For most of the inflation-targeting era, monetary policy announcements have revolved around one central question: what is happening to inflation? This time was different. While the Reserve Bank of India's Monetary Policy Committee chose to leave the policy rate unchanged at 5.25 per cent and maintain a neutral policy stance, the real story was not inflation. The focus was the rupee itself.

To be sure, inflation risks are emerging. The RBI has flagged persistent geopolitical tensions, rising wholesale prices driven by higher crude oil and input costs, and the possibility of weather-related disruptions to agricultural output, leading to a potential rise in food inflation. Yet these risks have not materially reflected in c...