Policy signals calibrated tightening

During the gradual transition to a neutral stance, maybe over the next couple of months, liquidity management will play an important role in transitioning the WACR closer to the repo rate

The members of the RBI’s monetary policy committee (MPC) voted unanimously to increase the policy repo rate by 50 basis points (bps), taking the repo rate up to 4.9 per cent. The lower bound of the rate corridor, the Standing Deposit Facility (SDF) rate, will rise to 4.65 per cent.

While the policy rate hike was widely expected, the salience of the RBI governor’s statement and comments was more as guidance of the future trajectory of policy tightening, while balancing growth and inflation trade-offs.  

There was indeed a change in communication. In the May off-cycle review, the MPC decided “to