Early this week, the Reserve Bank of India carried out what it has been hinting at for some time. It raised the repo rate (the rate at which it lends money to commercial banks) to 5.5%, saying the decision reflected challenging geopolitical developments and growing inflation concerns. If the concern is more about controlling inflation, the hike is unlikely to do that. Because the price pressure comes from oil. Crude is hovering around $100 a barrel due to the Hormuz crisis, while the rupee has slipped past 95 per dollar. Both impact fuel and imported goods, whatever Indians choose to spend.

Rate Hike Targets Demand

Basic economics tells us that if banks pass on the........

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