With the current round of policy rate hikes, RBI has cumulatively raised repo rate by 150 basis points, reverse repo rates by 200 basis points and cash reserve ratio by 100 basis points since October 2009. We believe RBI has done a commendable job of ensuring that the economy smoothly sailed through the rate normalisation process without disrupting the growth momentum. The Indian economy is in a comfort zone as far as domestic growth momentum is concerned.
While the impact of the central bank’s actions on inflation have started materialising, containing and anchoring inflation expectations remain a key tenet in the monetary policy stance. Key upside risks to inflation emanate from domestic demand-side pressures, potential increase in global commodity prices and the spectre of higher generalised inflation stemming from sustained higher level of food prices.