Ahead of the curve

RBI hikes rate to pre-empt inflationary build-up

The six-member monetary policy committee of the Reserve Bank of India had a difficult job on hand in an uncertain environment. While headline retail inflation continued to surge above the RBI’s target, the nascent economic recovery was showing signs of slowing, with industrial production growth in May slipping to a seven-month low. Most indicators related to inflation did suggest a rate hike, but there were equally compelling reasons for the central bank to avoid a back-to-back interest rate increase. In the end, however, the MPC decided 5:1 to stick to the path of maintaining the 4 per cent inflation target