............ Dr Rajan has clearly sought to establish his credentials as an inflation fighter and the action should be seen as an indication of how monetary policy will operate during his term. The former move was simply taking advantage of the room that had been created by the recent actions. This room will run out soon; the next initiative on October 29, if not before, will most likely be to bring the MSF rate back to 100 basis points above the repo rate, which itself may be raised by another 25 basis points in response to higher inflation numbers. Beyond that, the tone of last Friday's statement suggests that monetary policy will remain tight as inflationary pressures intensify as a result of rupee depreciation and persistent supply bottlenecks...........
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