Mumbai: The minutes of the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting this month revealed that the policy debate has effectively shifted from “cut or hold” to “hold or hike”. The pace and extent of further hike would depend on the evolving growth-inflation outlook.

“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,” the MPC said in its resolution.

All six MPC members voted unanimously to raise the repo rate by 25 basis points to 5.50 per cent on October 7. The MPC also changed its stance to calibrated tightening in October policy review from “neutral”, signalling a greater focus on containing inflation. However two members Nagesh Kumar and Ram Singh opposed shifting the stance from neutral to calibrated tightening.

This was the first rate hike by the RBI since February 2023.

Sanjay Malhotra, governor RBI said that inflationary pressures are building up. Headline CPI is projected to touch the upper tolerance band in Q3, and remain significantly above 5 per cent in the next two quarters. He said that there are signs of normalisation of inflation from the benign levels seen earlier.

“…there are increasing signs of generalisation of inflation as 37 per cent of the commodities in the CPI basket had inflation above 4 per cent in August – it was merely 20 per cent in March,” said Malhotra.

According to him the duration and extent of the rate hiking cycle would be contingent on the actual growth-inflation developments and outlook, especially that of underlying inflation, broadening of price pressures, second round effects of supply shock, and the impact of demand impulses.

“Nevertheless, I feel it is appropriate to change the stance to calibrated tightening, essentially signalling that 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 circumstances and the outlook,” he said, as per the minutes.

The committee raised its FY27 consumer price index (CPI) inflation forecast to 5.2 per cent from 5 per cent in August, while increasing its GDP growth projection to 7.1 per cent from 6.7 per cent. Inflation is projected to rise to 6 per cent in the third quarter before easing to 5.7 per cent in the fourth quarter.

Poonam Gupta, deputy governor RBI said that with projections indicating the likelihood of headline inflation hitting the upper tolerance limit of 6 per cent, “one may not want to wait for more definitive evidence of generalisation, and instead be mindful of the fact that monetary policy works with a lag.”

“Thus, rather than waiting any longer, in view of rising inflation and resilient growth, I favour raising the policy repo rate by 25 bps in this policy,” Gupta said.