Do you see any negative impact of the monetary policy announced by the RBI on 08-Apr?

It is hard to say at this point, but negative repercussions are perfectly possible. Unfortunately, in economics and financial markets everything is relative and contextual. In the current scenario, India also needs to look at what the Fed is doing. Incidentally, Fed has hiked rates by 25 bps in March and has signalled 6 rate hikes in the remaining 6 FOMC meetings in 2022. It is likely to push up rates by another 200 bps by end of 2022.

Raising rates is just one part of the story. In addition, Fed also plans to unwind the bond book (currently at $9 trillion) by $95 billion per month from May-22 onwards. This may look small, but the impact on incremental liquidity will be huge for India. In addition, the narrowing real interest spread could accelerate debt outflows, as well as put immense pressure on the INR. RBI may not be prepared for such a scenario.

Let us proactively look at what the RBI could have done. Firstly, it is important to give clear and unambiguous signals about trajectory of rates and liquidity outlook. When inflation persists at over 6% and when all central banks are intensely hawkish, the RBI is running a huge risk by sticking to an ambiguous tune. RBI really cannot afford the risk of huge monetary divergence, with its current macros. The message for the RBI is that the sooner India aligns with global monetary stance, the better it will be!