The Economy

   
RBI hiked yet again - this time the hike also tantamounted to a narrowing of the LAF corridor. It could be too early to think that  it is the beginning of a regime that would ultimately lead to a single policy rate and the re-emergence of Bank Rate as a signal rate. The decision to hike was logically compelling and it goes to RBI's credit that it yet again demonstrated its independence on monetary matters. From a market perspective, this could well be close to a last in the series of hikes as we may have reached  that vague theoretical 'normalisation' level. Normalisation of rates is much like the poverty-line concept of those days. We used to joke in our college days that the best way to move more people above poverty line is to lower the very line itself.

The next moves from now on should be on CRR or other tools that impact liquidity directly. With Credit to Deposit ratio showing appreciable downturn, policy transmission  gains that much more traction  by fair-pricing of liquidity.