Experts: RBI move signals central bank's shift of focus from WPI to retail inflation

The Reserve Bank of India unexpectedly raised its policy interest rate on Tuesday by 25 basis points (bps) but said that if consumer price inflation eases as projected, it does not foresee further near-term tightening. The RBI raised its policy repo rate by 25 bps to 8.00 percent. Here is what experts are saying: C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council [caption id=“attachment_1122471” align=“alignleft” width=“380”] PMEAC chairman C Rangarajan. Reuters[/caption] According to C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, the RBI move signals the central bank’s shift of focus from WPI to retail inflation. He also said that if inflation moves as anticipated, this may be the last rate hike. Naina Lal Kidwai, Country Head - HSBC Kidwai said the rate hike was not surprising as  inflation was seen as a key concern for the central bank. DARIUSZ KOWALCZYK, SENIOR ECONOMIST AND STRATEGIST, CREDIT AGRICOLE CIB, HONG KONG: “This (the rate hike) is very surprising given that inflation fell sharply of late. The central bank continues to confound markets after withholding from an expected hike at the previous meeting despite having talked tough about inflation. “The repeated wrong-footing of markets is likely to hit Indian assets today, and we expect declines of the INR, G-Sec bond prices and equities. Stocks and the currency will suffer also from the negative impact of the decision on growth.”     BACKGROUND - The wholesale price index (WPI), India’s main inflation indicator, climbed an annual 6.16 percent in December, its slowest pace since July 2013, compared with 7.52 percent in November, data showed this month. - Production at factories, mines and utilities shrunk for the second straight month in November, by 2.1 percent, data showed earlier this month, dragged down by a contraction in consumer goods output. - Reserve Bank of India governor Raghuram Rajan last week called inflation a “destructive disease” that was forcing the bank to keep interest rates high. - The RBI should make managing inflation its main policy objective and set monetary policy by committee, a central bank panel recommended last week, a shift that would bring its practices in line with many other central banks. With inputs from Reuters