In an unexpected move today, the Reserve Bank of India has hiked the Benchmark Policy Rate-Repo by 25 bps to eight per cent. This move seems a departure from the mid-quarter review on December 18, where the guidance was to wait for more data before further action.
However, at the same time, the statement released has given the comfort as it suggests that ‘further policy tightening in the near term is not anticipated at this juncture’. The policy statement underlines the expectation of softening retail prices in the coming weeks too. Reading the fine prints, it seems that the RBI wants to contain inflation below the eight per cent-level (as set out by the Urijit Patel Committee).
The statement says that if policy actions succeed to contain inflation, real GDP growth can be expected to move up from around five per cent in 2013-14 to around five and a half per cent in 2014-15. At the same time the review cycles have been introduced at every two months. This surely will lessen the speculations regarding future policy moves.
The guidance provided today reiterates the foremost objective of the RBI to cut down inflationary pressures and in turn, provide stable nominal anchor for the growth to take place in the coming time.