The RBI’s October policy marks a clean break from the easing cycle that began last year. The 25-basis-point increase takes the repo rate to 5.5%, but more important can be the shift from a neutral stance to “calibrated tightening”.
The RBI is no longer waiting for inflation to become an obvious demand-side problem before acting. It is trying to get ahead of the risk that a supply shock becomes embedded in inflation expectations, corporate pricing and credit conditions.
