The Reserve Bank of India (RBI) increased the repo rate by 25 basis points to 5.5% in its October Monetary Policy Committee meeting, adopting a calibrated tightening stance. This marks the first rate hike in the current fiscal year, with the RBI signaling a more measured approach to monetary policy. The central bank also raised its GDP growth forecast for FY27 to 7.1% and projected inflation to reach 6% in the third quarter, according to bfsi.economictimes.indiatimes.com.
The RBI's decision was unanimous, reflecting concerns about rising inflation and economic growth momentum. However, the central bank indicated that it may pause after this hike, with only one more 25 bps increase expected during FY27, likely in February rather than December. The calibrated tightening approach means future rate increases will be data-dependent and less aggressive than previous cycles, Barclays India noted during the post-policy press conference, as reported by bfsi.economictimes.indiatimes.com.
This measured tightening contrasts with earlier expectations of multiple consecutive hikes and reflects the RBI's focus on balancing inflation control with growth support. The move follows a period of liquidity surplus driven by large foreign currency non-resident inflows, which the RBI expects to diminish by the end of FY27. The central bank also maintained that a cash reserve ratio hike remains its least preferred option. The repo rate hike is expected to influence borrowing costs and investment decisions across India’s economy, according to livemint.com.
Market experts anticipate that the RBI’s calibrated tightening stance will keep monetary policy flexible amid evolving economic conditions. The next Monetary Policy Committee meeting is scheduled for early 2027, where the RBI will reassess inflation and growth data before deciding on further rate adjustments, bfsi.economictimes.indiatimes.com reported.