RBI Repo rate: Wants smooth policy measures, smaller hikes, says report

In view of a strong rise in inflation, the Reserve Bank wants a smooth monetary policy response, and a desire for modest increments drove it to tighten policy in an off-schedule meeting on Thursday, according to a source.

The impact of Russia's invasion of Ukraine on inflation has been significant, and inflation will eventually reflect the damage produced by Indonesia's embargo on palm oil exports, according to a person familiar with central bank thinking.

"The aim is to have a gradual policy reaction, not massive cold turkey responses," the source added, emphasising that smaller magnitude responses are preferred over larger ones.

On what has changed between April 8,  when the last scheduled policy meeting agreed to preserve the status quo, and May 4, the source said the March inflation print of near 7% was significantly over RBI's forecasts, and the trend is expected to continue in April.

After more than two years of focusing on growth, the RBI moved its priority to inflation, which was part of acclimating everyone to the new reality,  source said , adding that Mint Road will be glad to be labelled a "baby stepping central bank."

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