New Delhi: The Reserve Bank of India (RBI) on Wednesday raised the benchmark repo rate by 25 basis points to 5.5% from 5.25%, marking its first rate hike since February 2023. The decision was unanimously approved by the Monetary Policy Committee (MPC), headed by RBI Governor Sanjay Malhotra.
The rate increase comes amid concerns over rising inflation, higher oil prices, a weakening rupee and continuing global economic uncertainty. The RBI also shifted its monetary policy stance from “neutral” to “calibrated tightening” for the first time since 2018, signalling that it is prepared to take further action if inflationary pressures intensify.
A neutral stance allows the central bank to respond flexibly to changing inflation and growth conditions, while calibrated tightening indicates a preference for tighter monetary conditions. Governor Malhotra said rate cuts were “off the table in the near term”.
Addressing the MPC, Malhotra said global inflation was expected to rise, while trade uncertainty and fragile global sentiment continued to pose risks. He also warned that the Iran war could disrupt trade and global supply chains.
Despite the tighter monetary stance, the RBI upgraded its real GDP growth forecast for the current financial year to 7.1% from 6.7% earlier. It said economic activity remained resilient during the July-September quarter, with manufacturing activity holding up despite cost pressures and the services sector maintaining broad-based momentum.
The central bank said fixed investment remained strong, while private consumption and investment were expected to continue driving growth. Net exports have also remained positive.
However, the RBI flagged weaknesses in non-durable goods and domestic air traffic. Supply-chain disruptions, a weak monsoon and the possibility of an El Nino event could pose risks to growth, particularly by affecting the Rabi crop.
The RBI also raised its core inflation forecast for the financial year to 4.4% from 4.3% earlier.
Industry welcomed the focus on inflation but cautioned that higher borrowing costs could add pressure on manufacturers already facing elevated energy and input costs.
