The RBI’s October policy meeting marked the start of a monetary policy tightening cycle, with the MPC unanimously raising the repo rate by 25 bps to 5.50%, while also shifting its policy stance from ‘Neutral’ to ‘Calibrated Tightening’. The new stance effectively rules out near-term cuts, leaving a pause or a further rate hike as the next policy move. The Governor emphasised that future decisions will be measured and calibrated in response to evolving macroeconomic conditions, making the policy path data-dependent rather than pre-determined.
The RBI raised its FY27 real GDP growth forecast by 40 bps to 7.1%, while raising its FY27 CPI inflation forecast by 20 bps to 5.2%, with inflation expected to peak at 6.0% in Q3. Price pressures have broadened somewhat, although evidence of supply shocks becoming entrenched in pricing behaviour remains limited. Banking-system liquidity remains in surplus, keeping WACR alignment with the policy repo rate in focus, while VRRRs and OMO sales likely to remain the primary absorption tools.
We view the policy statement as hawkish and expect 75 bps of cumulative policy tightening, taking the terminal repo rate to 6.0%, with two-sided risks around this call.
