The Reserve Bank of India, or RBI announced its annual credit policy on Tuesday. It has kept all the policy rates - the CRR, repo as well as the reverse repo rates unchanged.

The apex bank's move did not surprise the markets. It left all key policy rates unchanged and maintained a status quo on its monetary policy stance.

Ajay Shah, Economist with IGIDR, comes back with the opinion that it is a given that monetary policy works with a lag. If however the latest available data on inflation is showing that inflation is roughly at 7.5% and if the two policy rates are at 6% and 7.5%, then the two real rates would be 0% and minus 1.5%.

He doesn't think this stance of monetary policy will slow down inflation. There is usually, a long lag between real rates slowing down the business cycle, which he doesn't see happening at this point. The story is far from over and there may be problems in store on inflation.

The first reaction from the markets has been one of relief. On whether this keeps the door open for an inter-policy rate-hike, Samiran Chakrabarty, Economist wih ICICI Bank, believes that the RBI seems to be much less hawkish than what it has been talking in the last few policies.

He welcomes the step that the RBI is recognizing the lagged impact of policy responses and that augurs well for the growth outlook. But eyes need to be kept open towards the inflation outlook and watch how it pans out. That will be the clue to an intermitting rate hike.

Could there be a reason for inflation to fly off the handle, simply because rates have not been hiked? On this Ajay Shah is of the opinion that he doesn't want to overplay the argument, as there cannot be a real rate of, roughly, zero. Secondly, there are the CRR hikes and exchange rate appreciation, which will benefit the inflationary data. There is also a non-transparent piece of monetary policy, which is, how the RBI trades on the currency markets.

Becasue, how they trade on the currency market affects local interest rates. It is a non-transparent tool of monetary policy, which can be used in coming days.

He says one does not really know how things are going to pan out, and that the situation is genuinely worrisome. He does not share the comfort of other people who seem to think that inflation is tolerable and low interest rates should sustain growth; that is a false perspective, because there is no trade-off between inflation and growth. The inflationary spiral will fundamentally contaminate growth.

While, Samiran Chakrabarty thinks that the policy has kept everyone guessing. If that is the case, then inflation-fighting seems to be the predominant stance and policy response, going forward, is likely to have a tightening bias. It's difficult to quantify the number of rate hikes expected at this point, but inflation target being reduced a tiny bit to 5% is worrisome.

So, it has to come to below 5% for RBI to become comfortable on the inflation front. That has still some way to go, he thinks.