RBI MPC 5 key takeaways: From inflation concerns to a possible end to rate cuts

The Reserve Bank of India on Wednesday raised the repo rate by 25 basis points to 5.50% and changed its policy stance from neutral to calibrated tightening.This was the first repo rate hike in nearly 4 years as inflation pressures rise, even as economic growth remains resilient.The MPC unanimously voted for the rate increase after its three-day meeting on October 5-7. It also changed its policy stance to “calibrated tightening”, signalling that the central bank is no longer considering rate cuts in the near term.RBI Governor Sanjay Malhotra said the decision was driven by the changing inflation outlook, even as the Indian economy remained resilient.“Inflation and its outlook are not as benign as they were last year,” Malhotra said, adding that headline CPI inflation is expected to average around 5.8% over the next three quarters, while inflation for the full financial year is projected at 4.4%.Here are five key takeaways from the October MPC decision.REPO RATE RAISED TO 5.50%The MPC unanimously raised the policy repo rate by 25 basis points to 5.50%. This is the first repo rate hike since February 2023 and marks a reversal after the RBI had kept rates unchanged for several months.The Standing Deposit Facility rate now stands at 5.25%, while the marginal standing facility rate and bank rate have been raised to 5.75%.RBI SHIFTS TO CALIBRATED TIGHTENING The MPC changed its stance from neutral to calibrated tightening, with four members voting in favour of the change.The shift is important because it signals that the RBI is now more focused on containing inflation and is prepared to tighten policy further if required.Malhotra said the change was necessary because inflation risks had increased.“In this milieu, the MPC opined that recalibrating the policy rate is an imperative,” he said.RATE CUTS ARE OFF THE TABLE FOR NOWThe RBI has clearly indicated that it does not see room for rate cuts in the near term.However, it has not committed to another hike either.“Given the current conditions, rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause depending on the evolving conditions and the outlook,” Malhotra said.The duration and extent of any rate-hike cycle will depend on inflation, growth and the extent to which price pressures become broader and more persistent.INFLATION FORECAST RAISED TO 5.2%The RBI has projected CPI inflation at 5.2% for the current financial year.It expects inflation to rise to 6% in the third quarter before easing to 5.7% in the fourth quarter.The central bank cited deficient monsoon rainfall, El Nino conditions and volatility in international oil prices as key risks.Malhotra also said there were early signs of inflation becoming more generalised.GDP GROWTH FORECAST RAISED TO 7.1%Despite the inflation risks, the RBI remains confident about India's growth outlook.It raised its GDP growth forecast for the financial year by 40 basis points to 7.1%.Q1 GDP growth came in at 7.8%, supported by private consumption and strong investment activity.“Domestic economic activity exhibited resilience amidst global headwinds,” Malhotra said.The RBI expects services activity, stable employment, infrastructure spending, private capex and strong credit flows to support growth going ahead.At the same time, it warned that geopolitical tensions, elevated commodity prices, trade frictions and tighter global financial conditions could weigh on the outlook.- Ends