3 min read.Updated: 05 May 2022, 10:21 PM ISTAndy Mukherjee, Bloomberg
Its sharp rate hike of 4 May should be followed by more tightening
In trying to squeeze one last drop of output from an empty barrel of monetary elixir, India’s central bank made the serious mistake of not only ignoring the country’s inflation build-up, [in evidence for quite some time], but pretending that it didn’t exist. Now that the Reserve Bank of India (RBI) has surprised markets with an unscheduled 40 basis point increase in its benchmark interest rate, the so-called repo rate, the journey to recoup its lost credibility is finally underway. Chances, however, are that it will be a hard slog for RBI. While a campaign of tightening monetary policy is unavoidable under the country’s economic circumstances, the longer it goes on, the more it could annoy Indian politicians.