If there’s a broad message to be read into the policy, it is this: Reddy is confident of the state of the Indian economy. Needless to add, it has taken some help from the government, which recently took several supply-easing measures against inflation. Notably, the RBI has wielded no direct tool, opting instead to increase the cost of credit through the influence of its own participation in the market for short-term debt. This is in conformity with its well-conveyed stance since 2004—a phased withdrawal of what it delectably called its ‘monetary accommodation’. Earlier hikes had already brought about a sharp decline in the liquidity overhang, and with that much less money splashing up around the edges, the RBI now expects a better transmission of its monetary policy. In all, it has sought to reassure markets that transmission lags will not result in a chain-smash-up many months ahead, a horror scenario with all the hikes suddenly slamming into effect together.

Still, an economy growing at 9% will not hum along in quite the same manner as an economy growing at 6%, and the RBI’s caution in specific credit segments is therefore welcome. The raising of loan provisioning requirements should cool down these segments, even as heavier risk weightages on some assets leads commercial banks to pad up their capital-adequacy cushions against probable defaults. The ripple effect on the wider market for assets is hard to assess, given that external flows count for so much now (and S&P’s re-rating will draw more dollars). All in all, a fall in either business or investor sentiment is unlikely.