A former governor of the Reserve Bank of India (RBI), reminiscing on his days at Mint Road in Mumbai, told your columnist once that one of his rules was never to surprise the market with negative news. He said it was ok to give the market a positive surprise but, if there was unpleasant action coming, the market should be given advance warning of what to expect. Given the way in which the RBI’s off-cycle jacking up of the policy rate for overnight money (and that by more than the usual 25 basis points) has been received, there can be little doubt that it has come as a negative surprise — even if most people knew already that a cycle of rate increases was in the offing. Also noteworthy is the unanimity on the subject within the monetary policy committee, just as there was unanimity a month ago when no repo rate change was announced. This is an unusual two-way groupthink, even as it appears that the RBI is now trying to make up for lost time in tackling inflation.
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