The RBI raised the repo rate by 25 bps to 5.5% and shifted its stance from “neutral” to “calibrated tightening”, signalling a clear shift in its policy direction
With inflation expected to remain elevated, Governor Sanjay Malhotra indicated that near-term policy action would be either a rate hike or a pause
Inflation is projected at 5.2% this financial year, while the next three quarters are expected to average 5.8%. This points to another rate hike, likely in December
The RBI’s 2024 estimate put the natural rate at 1.4-1.9%. This suggests scope for another 100 bps of tightening, though the estimate may have changed since then
The RBI raised its FY27 GDP growth forecast to 7.1%, while FY28 growth is projected at 7%. Strong growth allows the MPC to focus firmly on containing inflation
Abundant banking-system liquidity could weaken policy transmission, while rupee pressure may require continued RBI intervention
Currency and liquidity management will remain crucial