Rate hike: A positive communication

The current rate hike appears to be on the back of vulnerability in the external sector

The Reserve Bank of India decision to raise repo rates was perhaps dictated by a desire to move ahead of the curve and hence impart credibility to the inflation targeting framework. The unanimous rate hike call by Monetary Policy Committee members is also a smart communication to the markets of speaking in unison. This is perhaps to negate the market cacophony of interpreting diverging views in minutes and policy press statements as happened in April. As AS Blinder said, “A central bank that speaks with a cacophony of voices may, in effect, have no voice at all.” The other good