RBI policy: Can higher inflation become the new normal for the markets?

The upward revision in RBI's inflation projection, analysts suggest, implies that the central bank is likely to keep the rates elevated for a longer period of time than what the Street expected.

The Reserve Bank of India's (RBI's) upward revision in inflation projections triggered a knee-jerk reaction in the markets, with the S&P BSE Sensex dropping over 400 points, or 0.7 per cent, in intra-day trade to hit a low of 65,539.05.

The upward revision in the inflation projection, analysts suggest, implies that the central bank is likely to keep the rates elevated for a longer period of time than what the Street expected. This, in turn, can keep the market sentiment in check.

“The monetary policy committee (MPC) has delivered in line with market expectations on rates, stance and tone, with retention of