"My Name is Raghuram Rajan and I do what I do"

I am data driven, predictable, don't succumb to political pressure and I take baby steps when it comes to cutting rates. And sometimes I do what Mr. Modi and Mr. Jaitley ask me to do. 

Hence today I decided to cut the repo rate by 50 bps, when everybody had factored in 25 bps and was getting used to my predictable ways of being a nosy inflation hawk, I now free myself from that situation and have suddenly mutated and grown wings to become an accommodative dove.

He said “investment is likely to respond more strongly if there is more certainty about the extent of monetary stimulus in the pipeline, even if transmission is slow. Therefore, the Reserve Bank has front-loaded policy action by a reduction in the policy rate by 50 basis points. Given our year-ahead projections of inflation, this ensures one year expected Treasury bill real interest rates of about 1.5-2.0 per cent, which are appropriate for this stage of the recovery.”

"Some may call it an early diwali bone .. no no .. cant say that ... ummm ... diwali gift and some have called me Santa Claus. But I am Raghuram Rajan and I do what I do." 

Cool sounding central banker in the house and some of the journalists went weak in their knees. Thank God, Shobha De wasn't around.

So earlier his view was that inflation trajectory was his domain and giving clarity on that aspect was key to growing investment and capex. Today he switched sides and joined the government side and said that investment would be more likely to respond to certainty about monetary stimulus. 

Even the poor economists who anyways are pilloried for their forecasting skills along with weathermen were caught scrambling for answers. By tomorrow they would have come to terms with this cut and with enough time to rationalize and apply hindsight bias, justify how they saw it coming. But today some of their ilk were more candid. “The tone and the action of the policy is surprising. There is a clear shift of focus (from inflation) to growth,” said Shubhada Rao, chief economist from Yes Bank, who expected a 25 basis point cut.

"A further monetary policy accommodation will be conditioned by the abating of recent inflationary pressures, the full monsoon outturn, possible Federal Reserve actions and greater transmission of its front-loaded past actions," the RBI press release said. Sandwiched in between these various reasons, is the real cause what I think gave the RBI Gov, the heebie-jeebies. And that is Lady Yellen, not lifting off. 

My hindsight rationalization is that  besides political pressure to cut rates more aggressively, the mother ship standing pat on rates, owning to "global concerns" (which they had dismissed earlier), may have been the game changer. And that's perhaps from where Rajan has taken his cue to cut rates aggressively by an additional 25 bps (over the 25 bps already factored in), surprise the market, please the government and markets and put the ball, with a down the line back hand smash, right into the the government's court. 

Many birds, one stone.  

Well played Sir, well played. I just hope its not a case of too little, too late and the one day euphoria in the markets is not what this decision is judged by. Because at the end of the day, Mr. Market, by whatever name you call him, does what he does. And my sense is that he has already decided to go down in the medium to longer term, shorter term pullbacks notwithstanding.

Perhaps next time Raghuram Rajan (RR) should quote Akshay Kumar from the movie Rowdy Rathore (RR) and say, "Jo main bolta hoon woh main karta hoon.. aur jo main nahi bolta hoon woh main definitely karta hoon".