RBI is preparing the market for reverse repo rate hike

The RBI has calendarized its VRRR auction and stands ready to enhance its duration. This is the first sign of preparing the market for an eventual increase in the reverse repo rate.

“The MPC has a difficult job as it battles both the slowdown and the inflation COVID-19 has triggered”, one MPC member had noted at the August meeting. The monetary policy statement today reveals that India possibly remains in the same spot. The RBI indicated that the “recovery remains uneven” and “critically dependent upon policy support”. On the other hand, the recent inflation outcomes have made RBI more comfortable about the path of inflation than it was in August, despite the recent increases in the global commodity prices. All the above explains RBI’s decision to stay on a pause and retain