Last week, Reserve Bank of India governor Urjit Patel, in an interview to Network 18, once again explained the rationale behind the change in policy stance of the monetary policy committee (MPC). On 8 February, the rate-setting committee changed the policy stance from accommodative to neutral in order to give itself more flexibility. Consequently, bond yields shot up as the market was expecting the MPC to cut policy rates by 25 basis points (one basis point is 0.01 percentage point). Differently put, it is difficult to argue that policy rates can only go up from the present levels. It will also open up space for a significant cut in policy rates.

Source: Mint February 21, 2017 18:36 UTC