The panel decided to change the stance to calibrated tightening, signaling the end to the rate cut cycle. The members of the panel have flagged the inflationary pressures. Post the policy action, September month retail inflation surged to 5.54 per cent. Expectations are that it will breach 6 per cent in October, above the central bank’s tolerance band.
While there was consensus among members on the inflation risks, two members differed on the change in stance on the policy front. Panel member Prof. Ram Singh said shifting the stance from neutral to tightening mode, may signal an extended cycle of rate hikes. He also warned that expectations of significant rate increases could undermine demand not only in interest rate-sensitive sectors such as vehicles, real estate and discretionary spending, but also drag on recent momentum in private investment.
The RBI has upped its inflation outlook for FY27 by 20 basis points to 5.2 per cent. The positive side is growth has been better than expected. External agencies have increased their forecast, while the central bank has increased India’s GDP forecast by 40 basis points to 7.1 per cent for FY27. The policymakers have thrown enough hints that more hikes are around the corner. Interestingly, all these developments come amid the festive season, which is the key demand period for many sectors. Yet, industry players remain positive about the outlook. Experts see further rate hike of 50-75 basis points in the current tightening cycle. When RBI’s MPC meets in December it will have a better picture to decide on further tightening. n
