Normalising policy

The pace of rate hikes could moderate

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) did well to increase the policy repo rate by 50 basis points to 5.4 per cent last week. The standing deposit facility and marginal standing facility rates were adjusted accordingly to 5.15 and 5.65 per cent, respectively. A section of the market was expecting the committee to go slow, which was reflected in higher bond prices in the run-up to the policy meeting. However, the MPC had strong reasons to do what it did. Although the retail inflation rate has moderated in recent months, it still remains elevated