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Leading economists agreed that the steeper-than-expected hike of 50 basis points in repo rate was the standout feature in the policy review statement that was otherwise largely along expected lines.

According to Mr Dharmakirti Joshi, Principal Economist, Crisil, the decision was motivated by two factors. One, the fiscal situation, particularly on account of the loan waiver and the implementation of Pay Commission recommendations, is providing a d emand stimulus, which can only intensify the inflationary pressure.

Two, since domestic fuel prices do not fully reflect the global price scenario, energy prices are not helping to reduce demand to the fullest possible extent.

Mr Abheek Barua, Chief Economist, HDFC Bank, said that the ‘repo spike’ was warranted since banks were not willing to revise lending rates beyond 50 bps even after the regulator had effected cumulative hikes of up to 75 bps before the latest round.

“Mere nudging to do its bidding was not getting the Reserve Bank anywhere and it was to be expected that it would seek to ensure that the banks fell in line from now on,” Mr Barua said.

According to him, the inflation target of seven percent by March 31 was not an improbable one so long as oil prices behaved and the international commodity prices stabilised.

Mr Ananda Bhoumik, Senior Director, Fitch Ratings, was of the view that monetary tightening could not be termed as contradicting the Centre’s giveaways in debt waivers or the pay commission proposals. The Government could still hope to get its finances right through divestment programmes that various Ministries had already hinted about.

VINSON KURIAN

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