The RBI last week raised the key lending rate by 35 basis points to 6.25 percent. This is the fifth hike in a row. This time the hike is bit modest, however, compared to the last three consecutive 50-bps repo rate hikes. Slowing inflation- which has although ruled at or above the upper tolerance band since January 2022 - seems to the reason behind it. The MPC decided to remain focused on withdrawal of accommodation while supporting growth.

The central bank Governor reiterated that they will keep Arjuna's eye on the evolving inflation dynamics, adding that although inflation is expected to calm down, the battle against it is yet not over. Sticky core inflation, negative impact of global factors on food prices and weather-related unpredictability are some of the concerns pointed out. The latest November retail inflation figures, which fell to a 10-month low of 5.88 percent, are a relief however.

On credit, the RBI expects robust and broad-based growth. It is noteworthy here that credit growth to industry accelerated to 13.6 percent y-o-y in October, with micro and small industries recording credit growth of 20.4 percent from 14.6 percent a year ago. Credit to medium enterprises also rose by 31.0 per cent y-o-y. The Monetary Policy Statement points out that both industry and services sector activities are in expansion mode, as reflected by PMIs.

Overall, the central bank is optimistic about several encouraging macroeconomic factors, including "good progress of rabi sowing, sustained urban demand, improving rural demand, a pick-up in manufacturing, rebound in services and robust credit expansion", but on exports some major risks - geopolitical issues, slowdown in global economy and tightening global financial conditions – are pointed out.

I invite your opinions.