The Reserve Bank must maintain its hawkish stance

livemint.com:

RBI) monetary policy committee (MPC) will hold its fifth meeting of FY24 during 6-8 December. Although the MPC has kept the repo rate unchanged at 6.5% in all the previous four meetings this fiscal year (with unanimous voting), it is notable that the weighted average call money market rate (WACMMR) has averaged 6.75-6.8% in the past four weeks. In fact, barring about 10 working days, the WACMMR has been higher than 6.5% for the last three months.

This certainly amounts to covert monetary tightening, equivalent to a 25 basis point (bps) rate hike. (A basis point is one-hundredth of a percentage point) Not only the WACMMR, the balance under the liquidity adjustment facility (LAF) has also moved into deficit territory since September. Of course, the two variables tend to move in line with each other.

An increase in the WACMMR reflects tighter monetary policy, which means lower surplus or higher deficit under the LAF window. The LAF deficit has increased to more than ₹1 trillion in the last two weeks of November, before easing to ₹49,000 crore on 30 November. One may wonder about the need for such a stealth rate hike.

If the RBI wants to keep interest rates higher and liquidity tighter, then it is always more effective to do it in a direct and transparent manner. It would also bring more certainty to economic participants and make the central bank’s intentions very clear. Add to this, the rising concerns of the RBI about the exceptionally strong and resilient growth in unsecured consumer loans (personal loans, excluding housing, vehicles, education and loans secured against gold and jewellery), and the need for loosening disappears entirely.