Reserve Bank of India Governor Sanjay Malhotra said the central bank could raise rates again or pause, with the spread of inflation and the outlook for growth guiding its next move.
Minutes released Oct. 21 from the Reserve Bank of India's (RBI) Oct. 5-7 Monetary Policy Committee (MPC) meeting show all six members voted to raise the policy repo rate by 25 basis points to 5.50%. The committee also adopted a “calibrated tightening” stance. The RBI said that leaves an increase or a pause as its near-term options, depending on conditions and the outlook.
Malhotra pointed to evidence that price pressures had become more widespread. Malhotra said about 37% of items in the consumer price index basket had inflation above 4% in August, up from 20% in March. Overall consumer inflation rose to 4.8% in August from 4.5% in July.
The RBI forecasts inflation of 5.2% and real economic growth of 7.1% for fiscal 2026-27. It expects inflation to reach 6.0% in the October-December quarter. The bank cited a weak monsoon, continuing El Niño conditions and high energy and other commodity prices as risks to its inflation outlook.
Agreement on the rate increase did not extend to the policy signal. MPC members Dr. Nagesh Kumar and Prof. Ram Singh favored keeping the stance neutral. Kumar argued that inflation was largely driven by supply conditions and had not become widespread, according to the minutes.
Singh said expectations of large rate rises could discourage purchases of vehicles and property, reduce other discretionary spending and slow private investment. He also identified a potential squeeze on firms' margins. RBI Deputy Governor Dr. Poonam Gupta favored an earlier policy response because rate changes take time to affect inflation. She cited past action when inflation reached or exceeded the bank's tolerance limits.
Malhotra said the scale and duration of any further rate increases would depend on how growth and inflation develop. The MPC's next meeting is scheduled for Dec. 2-4.
