Raising the rate and the bar

Finally, the RBI is right in not providing a forward guidance in the current uncertain environment but providing a detailed explanation of keeping the stance unchanged

The MPC’s announcement to raise the key policy rate by 50 bps met the majority market expectations head-on. The trifecta of negativities, plaguing the global landscape, is also reflected in our estimates of the measure of domestic monetary policy independence, now at March 2020 levels when the pandemic had just set in. This sums up the rate decision of the Reserve Bank of India (RBI) and it may have to again recalibrate the monetary decisions of US Fed even in December policy.

We thus believe that a 35-bps rate hike in December looks imminent, taking the repo rate to 6.25%