RBI Shifts Stance to Calibrated Tightening After Raising Repo Rate by 25 Basis Points

UPDATE - follow-up to RBI MPC meeting highlights: Repo rate hiked to 5.5%; rate cuts off the table in near term, Governor Sanjay Malhotra says: Following its decision to lift the repo rate to 5.50%, the Reserve Bank of India's Monetary Policy Committee has shifted its policy stance from neutral to calibrated tightening. RBI Governor Sanjay Malhotra stated that rate cuts are completely off the table in the near term, with future actions limited to either a pause or another rate hike. The shift comes as headline CPI inflation is expected to average nearly 5.8% over the next three quarters, while core inflation is projected at 4.4% for the financial year. Real GDP growth for FY27 is projected at 7.1%. Governor Malhotra pointed to the sudden re-escalation of the West Asia conflict in September, which caused global crude prices to harden and volatile markets to sour global sentiment. The central bank also announced new measures to enable interoperability among NBFC-Account Aggregators and allowed SEBI-regulated depositories to include deposit accounts in Consolidated Account Statements. Industry reactions poured in as Abhimanyu Munjal, MD and CEO of Hero FinCorp, noted that higher rates will impact funding costs for NBFCs. EEPC India chairperson Pankaj Chadha advised exporters to brace for higher borrowing costs while noting engineering goods exports recorded 19.55% growth in the April-August period. ANAROCK Group Chairperson Anuj Puri warned that dearer home loans will extend buyer decision timelines, particularly in price-sensitive segments. Kotak Mahindra Bank Chief Economist Upasna Bhardwaj expects another 25 to 50 basis points of rate hikes ahead.

Context

Central banks typically raise repo rates to cool down rising prices when geopolitical tensions push up global commodity costs like oil. While this helps bring inflation under control, it directly results in higher borrowing costs and steeper monthly loan payments for ordinary consumers and businesses.