- RBI mid-quarter monetary policy review: HighlightsAfter RBI repo rate hike, Raghuram Rajan says Marginal Standing Facility, repo rate gap to be cutMid-Quarter Monetary Policy Review: Read full statement by Raghuram RajanRBI repo rate hike: India Inc hits out at Raghuram Rajan, says will affect economic growth
can hardly take success of his risky strategy for granted. The currency has stabilized for now, but another rupee slump will push inflation even higher by increasing the domestic cost of imported oil. And how much higher can Indian interest rates go before Raghuram Rajan's political masters stop him in his tracks? After all, they have to face an election next year. Raghuram Rajan doesn't.
-The Reserve Bank of India, now helmed by Raghuram Rajan, a former IMF chief economist, lifted its key policy rate by 25 basis points on Sept. 20 to 7.5 percent to tackle near-double-digit consumer price inflation.
- Simultaneously, the central bank announced a 75 basis point reduction in the marginal standing facility (MSF) interest rate at which banks facing a liquidity squeeze borrow directly from the monetary authority.
- The RBI had raised the MSF rate by 200 basis points to 10.25 percent in July to shore up the rupee by triggering a sharp increase in short-term interbank interest rates.
- The rupee, which slumped 22 percent against the U.S. dollar in four months through Aug. 28, has erased half of its losses since then. The rupee traded at 62.13 against the U.S. dollar after the monetary policy announcement at 11:00 a.m. (0530 GMT) in Mumbai, down from 61.96. The benchmark National Stock Exchange Nifty index declined as much as 3 percent.
By Andy Mukherjee
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)