Hike in interest rate

Dr. Raghuram Rajan has surprised the market in the all the three policy reviews ever since he took over as the RBI chief in September 2013. He had hiked rates twice by 0.25% to tame soaring prices. But in the last monetary policy review on 18th December, Dr Rajan kept the key policy rates unchanged despite retail inflation accelerating to a record high of 11.24% in November 2013 and wholesale inflation surging to 7.52%, the highest in 14 months. The wholesale price index slipped to five month low of 6.16% in December, which is still above the RBI's commonly perceived comfort level of 5%.

Despite the fall in inflation, Reserve Bank of India unexpectedly raised its policy repo rate by 25 basis points to 8%. Banks are expected to hike their lending rates after the RBI's surprise move. Rate hike will set economy on the disinflationary path.

On Monday, the benchmark RSS4 grade rubber closed at `.148 a kg at Kottayam. Today, RSS3 grade closed at `.138.14 a kg at Bangkok and Malaysian SMR20 closed at `.127.81 a kg. Tokyo Commodity Exchange, February 2014 futures series closed at ¥220 a kg, March at ¥220.6, April at ¥222, May at ¥224.5, June at ¥226.7 and the contract for delivery in July 2014 closed at ¥228.1 a kg. While on National Multi Commodity Exchange, February 2014 futures were trading at `.140.80 a kg, March at `.142.97, April at `.146.10 and May at `.150 a kg, at 12.10 IST.

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