Markets are hungry for good news these days, and last week they took no time in gobbling up the US Federal Reserve's decision against partial rollback of its $85 billion bond buying stimulus. The surprising move -- while left the US stock markets and the USD battered --  fuelled a relief rally for many other bourses and currencies across the globe. Here too, it was no different - a day after the Fed announcement, the BSE benchmark Sensex closed at a nearly 3-year high, and the rupee hit its highest level in nearly five weeks. For our struggling economy, these developments were worth feasting upon.

But a bigger surprise came on Friday -- two days after the Fed decision -- with the RBI's mid-quarter monetary policy review. It had been widely expected that the central bank would at least leave the policy rates unchanged to help the sluggish economy -- an opportunity paved by the Fed's decision -- but it didn't. Instead the repo rate (the rate at which RBI lends money to commercial banks) was raised by 25 basis points. For Dalal Street, which had been looking to Raghuram Rajan, the new Governor, for a sentiment boost, the announcement was no less than a shock. The markets reacted sharply, with the Sensex crashing nearly 400 points, much of the gains earned the previous day. The rupee fell 46 paise to close at 62.23 against dollar. In this sense, it seems an opportunity missed.

A section of the industry has fumed at the RBI decision, which, according to them, will affect the economy in a number of ways -- by hitting the already weak business confidence, industrial production, investor sentiment, consumption in the festive session, and exports. No doubt these concerns are genuine. At this moment the industry is reeling under high bank lending rates and our industrial production growth is very slow. In addition, the RBI move will also result in higher bond yields. In fact, yield on 10-year government bond surged to 8.58% on Friday, and at this rate borrowing costs for the industry will rise sharply, and the SME sector will suffer the brunt most.

However, I'm finding it difficult to term the RBI's move as totally logic-defying. First, at this moment the  priority for the country should be to stabilize the rupee, which substantially strengthened recently but is still far from stable. Second, both wholesale and retail inflation are still at high levels despite good monsoon expectations. Third, the monetary and CAD correction steps like liquidity tightening and curb in gold imports taken by the RBI recently would take some time to show results. Until then RBI has to ensure steady inflows and currency stability and in the meantime, the government should try to push growth by all possible means -- by cutting expenditure, clearing projects fast and removing bottlenecks.

I invite readers' feedback.