Analysts, economists divided over Rajan measures

MUMBAI: The surprise rate hike and liquidity boost by Governor Raghuram Rajan left analysts and economists divided with a section terming the moves as "growth-supportive", while others saying he has left market confused and further dampened the already anaemic growth.

"Governor Rajan has established his credentials as a responsible central banker sensitive to critical macroeconomic vulnerabilities and not a cavalier cheerleader for growth. His emphasis is on focusing on long-term inflation and not just one or two high inflation prints is also heartening," HDFC Bank said in a research report.

Noting that Rajan has spooked the market, the report said hiking the repo rate was the natural reaction to the prospect of higher inflation and potential depreciation of the rupee.

PwC India's financial services head Robin Roy said, "The inflationary overhang is still very palpable in the policy document, though we feel that the recent monsoons may help blunt the CPI and food inflation.

"While effective interest rates have not been tempered for banks, short-term liquidity has not been hampered. So in sum, the Governor took a measured effort to balance inflation containment measures and stoke growth supported by a good monsoon and expected results of measures to moderate import dependent demand," Roy said.

Terming the policy stance as strongly hawkish, Standard Chartered Bank's Anubhuti Sahay said, "The unexpected policy rate hike and the strong hawkish bias are likely to dampen market sentiment. It also shows that RBI has shifted its focus back to domestic factors."