The Reserve Bank of India's Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, on October 7 unanimously voted to increase the repo rate by 25 basis points to 5.50 percent, as inflation is no longer benign, with headline CPI likely to average nearly 5.8 percent over the next three quarters, although growth remains resilient. The rate hike came for the first time since February 2023.
The MPC also decided to change the policy stance to calibrated tightening. This signals that, given the current conditions, rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause, depending on evolving conditions and the outlook, the RBI said.
Going ahead, the central bank said the duration and extent of the rate-hike cycle would be contingent on actual growth-inflation developments and the outlook, especially underlying inflation, the extent of the broadening of price pressures and second-round effects of the supply shock, as well as the impact of demand impulses.
"The shift from neutral to calibrated tightening closes the easing cycle of 2025 and makes inflation control the policy priority. The Governor has been explicit that the next move is a hike or a pause," Sachin Sawrikar, Managing Partner at Artha Bharat Investment Managers IFSC LLP, said.
According to him, with the policy rate only 30 basis points above projected inflation, further hikes remain on the table if price pressures persist.