It was less than four weeks ago that the Reserve Bank of India, under new head Raghuram Rajan, stunned the world on September 20 when it 813530announced that it would both hike its repo and cash reserve rates in an inflation fighting step, while lowering its marginal standing facility rate by 75 bps to 9.5% in order to boost banking sector liquidity, hence “bipolar policy” of the kind most recently seen in Europe. Moments ago, the RBI once again showed that when faced with the option of consumer pain, i.e. runaway inflation, and preserving a banking status quo, i.e. liquidity, the central bank will always choose the latter, when in a surprising move the RBI cut its Marginal Standing Facility rate by further 50 basis points, from 9.5% to 9.0%.  Continue reading

Advertisements