The Reserve Bank of India raised its policy repo rate by 25 basis points to 5.50 percent on Wednesday, the first increase since February 2023 and the mirror image of the 125bp of cuts it delivered through 2025. The six-member Monetary Policy Committee voted unanimously under Governor Sanjay Malhotra, also lifting the standing deposit facility to 5.25 percent and the marginal standing facility and Bank Rate to 5.75 percent.
The real signal was the stance. The MPC moved from neutral to “calibrated tightening,” a formulation the RBI said means rate cuts are off the table in the near term and that policy ahead can only be a hike or a pause, depending on evolving conditions. Two members, Nagesh Kumar and Ram Singh, dissented on the stance change, preferring to hold at neutral.
The numbers justify the hawkishness. August CPI came in at 4.8 percent, up from 4.5 percent in July, with core at 4.2 percent and food price gains broadening to sugar and onion. The RBI now projects FY27 inflation at 5.2 percent, up from 5.0 percent, with Q3 at 6.0 percent, while lifting its FY27 growth forecast to 7.1 percent from 6.7 percent after a stronger-than-expected 7.8 percent first quarter. Globally, the re-escalation of the West Asia conflict and crude above $100 a barrel, plus the US Fed’s September hike, tightened the room to hold.
The outcome was in line with the economist consensus and defused the hawkish tail that swaps markets had been pricing, where 25 to 33 percent odds of a 50bp move had been flashing Tuesday. Markets still sold it: benchmark 10-year G-Sec yields hardened 5 to 6 basis points to around 7.25 percent, and the Sensex and Nifty slipped in midday trade. Kotak’s Deepak Agrawal expects another 25bp at the December 2-4 meeting, while Equirus notes the real policy rate is still roughly negative 40bp, pointing to further tightening ahead. The MPC minutes publish on October 21.