Raghuram Rajan, in his first policy review on 20th
Sept.’ 13, increased repo rate
by 25 bps to 7.50 percent, defying most forecasts of holding the rate steady.
He has clarified that he is not going to give a free hand of
RBI to govt. to revive growth at this stage. It is clear that he has beaten
down the govt.’s expenditure plans fuelling inflation. To curb the inflationary
expectations, he has increased the rate. He has also indicated targeting CPI,
which remained stubbornly high near double digits for 3 continuous years.
Next mid quarterly policy review is due on 29th
Oct., as per his comments in the previous review, we may definitely expect him
to raise the rate again by 25 bps. I expect a Repo rate of more than 8% to curb
inflationary expectations and bring down the inflation to acceptable levels of
4-5%.
