When the RBI pulled an 'overnighter'.

I've been saying for the last couple of months that the RBI appeared to be the most sanguine central bank in the world - the only one I could think of which saw no problems either on growth or inflation.

This, inspite of the fact that the Wholesale Price Index (WPI) was over 13% for the entire financial year FY21-22 - a 3 decade high. The last reading was 14% plus.

True, the Consumer Price Index (CPI) inflation remained at less than half that value - but even so it was at the high end of RBI's target rate.

Usually, the CPI follows the WPI with a few weeks' lag as producers start passing on their cost hikes. Didn't happen to the same extent this time due to persistently sluggish demand.

As I've mentioned before, even before the Russia-Ukarine conflict, the prices of a whole lot of commodities from oil & gas to wheat, potash, oil seeds, aluminium, nickel, palladium etc were up 20-30% since January. Most went up further after the war started on Feb 24.

But for some reason the RBI saw no dark clouds meriting action, even after the war started.

Almost every other emerging market central bank raised rates over the last year - many did it 4-5 times but the RBI appeared to be gazing into a different crystal ball.

The sudden wake-up with a 40 bps hike just before the FOMC meet reminded me a bit of the 'overnights' all of us pulled off just before the project submissions in student days - when you found you hadn't done what you should have done days ago.

As it happens, the RBI ended up hiking rates the day of the LIC IPO launch, not the best time in relation to the government priorities.

There is also the rising trade deficit to contend with (partly due to the runaway crude prices) causing pressures on the Rupee. That may also be a possible contributory factor for a sudden hike.

From the desk of Devina Mehra

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