Analysts, economists divided over RBI Guv Raghuram Rajan's repo rate hike

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Crisil chief economist Dharmakirti Joshi said the policy is driven by the spike in inflation. IE photo: Prashant Nadkar Crisil chief economist Dharmakirti Joshi said the policy is driven by the spike in inflation. IE photo: Prashant Nadkar
SummaryCrisil chief economist Dharmakirti Joshi said the policy is driven by the spike in inflation.

The surprise rate hike and liquidity boost by Reserve Bank of India (RBI) Governor Raghuram Rajan left analysts and economists divided with a section terming the moves as "growth-supportive", while others saying he has left market confused and further dampened the already anaemic growth.

RBI repo rate hike: Raghuram Rajan wants to be India's Paul Volcker, fight inflation, hit by recession

"Governor Rajan has established his credentials as a responsible central banker sensitive to critical macroeconomic vulnerabilities and not a cavalier cheerleader for growth. His emphasis is on focusing on long-term inflation and not just one or two high inflation prints is also heartening," HDFC Bank said in a research report.

Raghuram Rajan's RBI effects 25 bps repo rate hike, turns EMIs on loans dearer

Noting that Rajan has spooked the market, the report said hiking the repo rate was the natural reaction to the prospect of higher inflation and potential depreciation of the Indian rupee.

PwC India's financial services head Robin Roy said, "The inflationary overhang is still very palpable in the policy document, though we feel that the recent monsoons may help blunt the CPI and food inflation.

"While effective interest rates have not been tempered for banks, short-term liquidity has not been hampered. So in sum, the Governor took a measured effort to balance inflation containment measures and stoke growth supported by a good monsoon and expected results of measures to moderate import dependent demand," Roy said.

Terming the policy stance as strongly hawkish, Standard Chartered Bank's Anubhuti Sahay said, "The unexpected policy rate hike and the strong hawkish bias are likely to dampen market sentiment. It also shows that RBI has shifted its focus back to domestic factors."

Describing the policy as as "a careful balancing act performed by the new Governor", EY India's financial services head Abizer Diwanji said this indicates his cautious attempt to ease the exceptional measures on liquidity at one end and inflation/growth-oriented priorities on the other.

"We need to use this window to control inflation by easing supply side constraints more through policy change and efficiency and open up fiscal measures thereafter. In that context the repo rate increase and the MSF rate reduction seems to be in the right direction, Diwanji said.

On the other hand Credit Suise's Robert Prior-Wandesforde termed the announcement as a reflection of Rajan's confusion saying "the key question is what exactly is he trying to achieve by raising the

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