Daijiworld Media Network - Mumbai

Mumbai, Oct 7: The Reserve Bank of India’s Monetary Policy Committee (MPC) on Wednesday raised the repo rate by 25 basis points to 5.50%, marking its first rate hike since February 2023 amid growing inflation concerns and a challenging global economic environment.

The decision was taken unanimously at the MPC’s three-day meeting held from October 5 to 7. Along with the rate hike, the central bank changed its policy stance to “calibrated tightening”, signalling that rate cuts are unlikely in the near term.

RBI Governor Sanjay Malhotra said the decision was based on changes in the inflation outlook, while noting that the Indian economy continued to remain resilient.

The governor said headline consumer price inflation was expected to average around 5.8% over the next three quarters, while inflation for the full financial year was projected at 4.4%.

The RBI’s decision comes amid rising global food and energy prices, volatility in financial markets and tighter global financial conditions. Malhotra said global growth remained resilient but was expected to slow, while higher food and energy prices were adding to inflationary pressures.

He also pointed to continued trade uncertainty, rising bond yields in advanced economies and an appreciating US dollar as factors affecting global financial stability.

Despite the external challenges, Malhotra said India’s economic momentum remained broad-based and the economy was expected to remain resilient.

The MPC said inflation expectations and price pressures had shown signs of rising, although there was limited evidence that supply-side pressures had become firmly embedded in businesses’ pricing decisions.

The central bank also highlighted the risk of second-round effects from supply shocks, particularly through their impact on inflation expectations and corporate pricing behaviour.

The MPC noted strong growth in monetary and credit aggregates but found limited evidence of demand-driven inflationary pressures.

Malhotra said the new policy stance effectively put rate cuts on hold in the near term. However, he clarified that the RBI was not signalling an immediate series of rate hikes, with future decisions to depend on developments in inflation and economic growth.

The RBI will closely monitor underlying inflation, the spread of price pressures, second-round effects of supply shocks and demand conditions while determining its future policy actions.