India's Reserve Bank still has more work to do

The central bank in India (RBI) today hiked the repo rate by 25bp to 6.5%, as was expected. In addition, the RBI adopted an unequivocally hawkish stance. High inflation, particularly when led by food prices, has inevitably become a big political issue as well as an economic problem. The repo rate is likely to be lifted again, by 25bp, at the next two policy reviews in mid-March and in early May. The risk to this view is that the RBI has to keep going far into the second half of 2011.