For the bond markets, this was a great policy, after two consecutive rate hikes.
Firstly, there was a pause in rates, when the whole markets expected a certain hike, only the quantum was being debated - 25 bps or 50 bps? The majority had voted for 25 bps.
One basis point is a hundredth of a percentage point.
Secondly, the inflation numbers were tweaked downwards and presented a much more sign of being in RBI's "safe" corridor and finally, the change of stance towards a "calibrated tightening" hinted at which could be understood as dovishness since it was clarified that this did not mean "deferred tightening" only that the path forward was binary - no-hike or a hike - in rates.
The bond markets rejoiced closing 12 bps lower, but the pain was felt elsewhere - rupee fell by 0.79 percent before stabilising to -0.25 percent and equity markets tanked.
One of the reasons for expecting a rate hike was the continued pressure on rupee, which depreciated in spite of recent administrative measures to manage current account deficit (CAD).
The Monetary Policy Committee (MPC) clearly underlined its priorities in managing inflation and not the rupee highlighting an independence not displayed by several other emerging markets raising rates to stabilise their currency.
Yet the bond market rally today is not comforting. In the last one month, UK 10 year yields are up 23 bps, US 10 year is up 30 bps, most European country bonds are up 11 to 16 bps and even the Japanese 10 year, which never moves much is up 4 bps.
India, on the other hand after today's rally is flat. During the same period, oil is up 8 percent, rupee down 3.25 percent and broader Bloomberg commodity index is up 5.4 percent.
In this backdrop with the output gap "almost" closed, cost-push pressures amidst 7.4 percent growth warrants caution on inflation trajectory.
We do not rule out further tightening by RBI in this environment with incoming data deteriorating and this could be the proverbial breather before the next move.
Amandeep Chopra is Head-Fixed Income, UTI AMC