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Below are View On RBI announcement  By Unmesh Kulkarni, Managing Director Senior Advisor, Julius Baer India

"RBI surprised the markets with a 40 bps hike in repo rate and a 50 bps CRR hike, in an off-cycle meet by the MPC on Wednesday.

The MPC’s action comes in the wake of concerns that RBI may have under-estimated inflation, and is behind the curve in changing its monetary policy stance.  

Wednesday’s decision shows RBI's commitment to tackle inflation, which has been ruling high, and at the higher end of RBI's comfort zone. Also, given the expectations of a 50 bps rate hike by the US Fed, RBI possibly wants to pre-empt the Fed action, in order to ensure stability in the currency and capital flows.

The CRR hike is a further step in RBI's liquidity normalisation drive, as it attempts to tame the persistent high inflation.  
However, the RBI MPC surprisingly retained its accommodative stance, even after Wednesday's repo rate hike and CRR hike. While RBI is committed to ensuring sufficient liquidity, the policy stance looks to have already changed to neutral-to-hawkish, which it may officially announce in the June MPC meet.

The markets have obviously been taken by surprise, and the 10 year benchmark g-sec yield jumped intra-day to 7.40%. Given the enhanced government borrowing calendar this year, RBI has a tough job at hand, to manage the market's expectations of yields while seeing the weekly auctions through in a non-disruptive manner"

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