Calibrated tightening stance a surprise; rate cut likely in February

The big surprise in the tone is that while risks have been highlighted in terms of inflation in general and other global factors, liquidity does not find any mention

The credit policy has thrown some surprises as usual. While no change in repo and the cash reserve ratio (CRR) could still be justified, retention of the stance of ‘calibrated tightening’ at a stage when the inflation forecast for the second half has come down to 2.7 - 3.2 per cent does require some explanation. The upside risk to inflation today is from oil prices increasing or the state fiscal deficits slipping up. While one is sure, the other is not. 

Further, the MPC has highlighted the state Pay Commission impact which through real, may not be entering the HRA component