Rate Hike Back On RBI’s Radar? MPC Minutes Sound Hawkish

The Reserve Bank of India’s latest monetary policy minutes have revealed a more cautious stance among policymakers than was evident in the August policy announcement, with members warning that a renewed rise in inflation could prompt a rethink of the current policy stance.

The minutes, released on Wednesday, showed that Governor Sanjay Malhotra and Deputy Governor Poonam Gupta both flagged the possibility of tighter policy if inflationary pressures become persistent.

The repo rate currently stands at 5.25%, with the Monetary Policy Committee maintaining a neutral stance.

Malhotra Flags Inflation Risks

Malhotra said a sustained increase in both headline and core inflation could require the RBI to reconsider the policy rate.

He expects inflation to rise towards a peak in the third quarter before moderating, with average inflation projected at around 5% in FY27. Headline inflation has averaged 3.9% so far, while core inflation is estimated at 4.3%.

According to Malhotra, food and fuel supply disruptions remain key sources of inflationary pressure, although underlying inflation remains relatively contained and inflation expectations are stable.

At the same time, economic growth has remained resilient. GDP growth was 6.7% in Q1 FY27, despite pressures arising from the West Asia conflict, supply-chain disruptions and an uneven monsoon.

Malhotra said the overall growth-inflation balance had not changed materially from the previous policy assessment.

Gupta Sees Scope For A Hike

Gupta also maintained a cautious view on inflation, while projecting 6.7% GDP growth and 5% inflation for FY27.

Her growth forecast was revised up by 10 basis points from June, while the inflation projection was lowered by 10 basis points. Better rainfall, stronger sowing, improved reservoir levels and resilient high-frequency economic indicators supported her growth assessment.

However, with inflation expected to reach 5.9% in Q3, Gupta said there was limited scope for further monetary easing.

She retained her vote for the 5.25% repo rate and neutral stance, while warning that a rate increase could become necessary during the year if inflationary pressures intensify.

Bhattacharya Warns Of Persistent Inflation

MPC member Bhattacharya also highlighted risks to the inflation outlook despite the headline projections of 6.7% growth and 5% inflation.

He pointed to persistent fuel-price pressures and elevated inflation expectations as potential risks. Strong credit growth and high-frequency indicators, meanwhile, continued to support economic activity.

Bhattacharya said the MPC would need to weigh the cost of tightening policy too early against the possibility that delaying action could eventually require a more aggressive response if inflation proves persistent.