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RBI Signals Rate Hikes, Rate Cuts Off Table
21 Oct
Summary
- Rate cuts are off the table; future moves will be hikes or pauses.
- RBI projects inflation at 6% in Oct-Dec quarter, top of tolerance band.
- Two external members dissented, favoring a neutral stance over tightening.
Governor Sanjay Malhotra has indicated that rate cuts are no longer an option for the Reserve Bank of India in the near term. Future policy actions are expected to be either rate hikes or pauses, signaling a shift towards tighter monetary conditions. This stance was solidified during the recent Monetary Policy Committee (MPC) meeting on October 5-7.
The MPC voted by a 4:2 majority to raise the repo rate by 25 basis points to 5.5% and adopted a "calibrated tightening" stance. This move suggests the central bank is proactively addressing inflation concerns, which are projected to reach 6% in the October-December quarter, the upper limit of the RBI's tolerance band.
Deputy Governor Poonam Gupta highlighted that appropriate policy action has been taken whenever inflation neared tolerance limits, reinforcing the RBI's commitment to maintaining price stability. She noted that while current inflation is largely due to external supply shocks, proactive measures are necessary due to the lag in monetary policy transmission.
However, two external members, Prof. Ram Singh and Dr. Nagesh Kumar, dissented. Prof. Singh argued against tightening, citing supply-driven inflation and absent signs of overheating, while Dr. Kumar favored a neutral stance amidst geopolitical uncertainties. The MPC's next meeting is scheduled for December 2-4.
