Business · Economy · 5 hrs ago
RBI raises rate to 5.5% as inflation spreads, signals possible further hikes
The Reserve Bank of India raised its benchmark rate to 5.5% after a meeting of its Monetary Policy Committee in October.
The increase was 25 basis points and was the first rate hike in nearly four years.
Governor Sanjay Malhotra said inflation was spreading: 37% of consumer-basket items had inflation above 4% in August, up from 20% in March.
The committee also shifted its policy stance from neutral to calibrated tightening, putting near-term rate cuts aside.
Deputy Governor Poonam Gupta said the RBI may need to act before inflation becomes entrenched, while two external members warned that tighter policy could hurt growth.
Their disagreement reflects the challenge of curbing prices without restricting economic activity.
The governor said the scale and duration of any further tightening will depend on incoming data on growth and inflation.
The Reserve Bank of India’s Monetary Policy Committee raised the benchmark repo rate by 25 basis points to 5.5%.
The six-member committee voted unanimously for the increase at its October 5–7 meeting, the first rate hike in nearly four years.
Governor Sanjay Malhotra said future tightening would depend on how growth and inflation develop.
Inflation above 4% was recorded in 37% of consumer-basket commodities in August, up from 20% in March.
Policymakers disagreed over whether to signal further rate increases, with external members Nagesh Kumar and Ram Singh opposing a shift to a tightening stance.
- Who
- The Reserve Bank of India’s Monetary Policy Committee, including Governor Sanjay Malhotra.
- What
- It raised the benchmark repo rate by 25 basis points to 5.5%. Members differed over signalling further tightening.
- When
- The committee met from October 5 to 7; minutes were released on Wednesday.
- Where
- India.
- Why
- Policymakers cited rising and increasingly widespread inflation. They said future action would depend on incoming data and the growth-inflation outlook.
Proactive tightening supporters
Neutral-stance supporters
Policy stance
Proactive tightening supporters
Governor Sanjay Malhotra shifted the stance to calibrated tightening, and Deputy Governor Poonam Gupta backed acting before inflation became more widespread.
Neutral-stance supporters
External members Nagesh Kumar and Ram Singh opposed changing the stance and favoured remaining neutral.
Risks
Proactive tightening supporters
Gupta said inflation could reach the upper tolerance limit and that delayed action could make it harder to control.
Neutral-stance supporters
Kumar said inflation did not show overheating or generalisation; Singh warned that a tightening signal could weaken growth and investment.
Inflation was above 4% in 20% of commodities in the consumer basket.
Inflation was above 4% in 37% of commodities in the basket.
The MPC met and all six members voted to raise the repo rate by 25 basis points to 5.5%.
The MPC meeting minutes were released.
- Repo rate
- 5.5% after a 25-basis-point increase
- MPC vote
- All six members supported the rate increase
- Inflation spread
- 37% of basket commodities had inflation above 4% in August
- March comparison
- 20% of basket commodities had inflation above 4%
- Meeting dates
- October 5–7
5 sources
RBI flags widening inflation risks, puts rate cuts on ice
Inflation risks overshadow 7.8% growth as MPC raises repo rate; majority favours calibrated tightening
RBI MPC Minutes: Governor Sanjay Malhotra ties future hikes to growth-inflation outlook — here is what he said
What people are saying
The extent and duration of the tightening cycle would depend on how growth and inflation evolve
Under these circumstances, it is conceivable that a further increase in the policy rate might be needed to keep inflation low and inflationary expectations anchored.
This, in turn, can neutralise the benefits of growth-supportive monetary and fiscal policies in the recent past.