Oct 7 (Reuters) – The Indian central bank raised its benchmark repo rate INREPO=ECI by 25 basis points to 5.5% on Wednesday, marking the first rise in nearly four years amid mounting inflation and strong economic growth.COMMENTARY:ABHIJIT SURYA, SENIOR APAC ECONOMIST, CAPITAL ECONOMICS, MUMBAI
“The hawkish tone of today’s decision supports our view that further tightening is likely. We continue to expect 25bp hikes in both December and February, which would take the repo rate to a peak of 6%. That is a more hawkish view than the consensus, which is forecasting a terminal rate of 5.75%.”
AASTHA GUDWANI, INDIA CHIEF ECONOMIST, BARCLAYS, MUMBAI
“We found today’s policy statement and tonality quite neutral. By changing the stance to ‘calibrated tightening’, we think the RBI has tempered the expectation of back-to-back hikes.
“We expect one more 25bp hike in remainder of FY27 but it may not necessarily come in December (more likely in February 2027).”
ADITI NAYAR, CHIEF ECONOMIST, ICRA, DELHI
“Today’s policy outcome is in line with our expectations of a rate hike with a change in stance to clearly signal that rate cuts are off the table.”
“The inflation prints are expected to harden moving forward, on account of a combination of factors such as the poor monsoon, rising commodity prices and an unfavourable base effect, setting the stage for another rate hike in December 2026. as of now, we do not foresee the need for further rate tightening in 2027.” DHIRAJ NIM, ECONOMIST AND FX STRATEGIST, ANZ RESEARCH, MUMBAI
“This is a clean and effective policy indicating that repo rate will likely go higher. But how high, will depend upon the second-order inflation impact.”
“We expect two more hikes at the least.”
SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
“The RBI began its rate-hiking cycle in lockstep with the turn in the interest rates higher by global central banks. The decision to change the stance to calibrated tightening signals that today’s rate hike is the beginning of a rate-hiking cycle over the coming months. We expect another 50 to 75 bps rate hikes over the coming months.”
“In the event that the West Asia conflict lingers on and oil prices remain elevated, the inflation risk could increase further, necessitating a more aggressive tightening cycle.”
KRISHNA BHIMAVARAPU, APAC ECONOMIST, STATE STREET INVESTMENT MANAGEMENT, BENGALURU
“The RBI has taken a sensible first step with a 25-bps hike. Our base case remains for a 100 bps of cumulative tightening over this cycle, although the ultimate magnitude will depend on how the global energy shock, food inflation, broader inflation dynamics and the global tightening cycle evolve in the coming quarters.”
“If food, energy and electricity inflation begin reinforcing each other, the RBI may ultimately need to deliver significantly more tightening than today’s move alone.” MADHAVI ARORA, CHIEF ECONOMIST, EMKAY GLOBAL, MUMBAI
“The change in stance to another new nomenclature ‘calibrated tightening’ felt more like a forward guidance than a policy stance per se, but has prepared markets for a higher-for-longer interest rate environment.”
“With US rates and growth higher and inflation proving stickier, India may need to offer a meaningfully higher risk premium, particularly amid elevated global volatility, high oil prices and lacklustre natural dollar inflows. Global financial conditions could thus increasingly dictate the RBI’s reaction function, alongside growth and inflation dynamics. We maintain a (forecast for) cumulative rate hikes of 75 bps in this cycle, but will be watchful of the fluid global dynamics.”
GAURA SENGUPTA, CHIEF ECONOMIST, IDFC FIRST BANK, MUMBAI
“The key surprise was the stance change to calibrated tightening and the lack of usage of normalisation of policy rate. This indicates that, in RBI’s assessment, the rate-hiking cycle could be deeper.”DIPTI DESHPANDE, SENIOR DIRECTOR AND PRINCIPAL ECONOMIST, CRISIL, MUMBAI
“Retail inflation has firmed in recent months, while upside risks from crude oil, commodities and food prices have become more pronounced. A ‘calibrated tightening’ stance allows the central bank the choice to either hike rates or take a pause depending on evolving inflation conditions.”
“We see room for another rate hike of 25 basis points in December.”
SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI, MUMBAI
“The RBI’s hike was, in our assessment, a touch-and-go decision shaped by extraordinary circumstances. Resilient domestic growth provided room to act, while rising food prices, elevated global crude prices, higher global and domestic bond yields, and rupee depreciation weighed heavily in favour of tightening.”
“This does not necessarily herald a series of further hikes: even the calibrated tightening stance leaves room for a pause, depending on how inflation and external pressures evolve.”
VIKRAM CHHABRA, SENIOR ECONOMIST, 360 ONE ASSET, MUMBAI
“The decision reflects a broadening of price pressures and rising upside risks to the inflation outlook. Although kharif sowing has been broadly normal, the weak monsoon could hurt crop yields, while low reservoir levels in northern and southern India may weigh on rabi output.
“Further, if energy prices stay elevated, their pass-through to broader prices will follow with a lag. We therefore expect another 50 bps of rate hikes in this cycle.”
RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE
“The RBI’s October hike acknowledges that cyclical inflation risks are no longer benign. A change in stance also underscored the RBI MPC’s hawkish intent. Against a backdrop of elevated oil prices, tighter global conditions, and risks to food inflation from unfavourable weather, policymakers have chosen to reinforce inflation credibility before risks become entrenched.”
GARIMA KAPOOR, DEPUTY HEAD OF RESEARCH AND ECONOMIST, ELARA SECURITIES, MUMBAI
“Continuing commodity price pressures are likely to put upside pressure on inflation, as growth remains resilient, allowing quick pass-through of input prices to retail prices.
“The rising interest rate backdrop globally has also reduced RBI’s degrees of freedom. We see (a) likelihood of another 50 bps (of) hike(s) this cycle.”
(Reporting by Ira Dugal in Mumbai; Kashish Tandon, Bharath Rajeswaran, Anuran Sadhu, Anushka Rajvedi and Vivek Kumar M, Aishwarya Jain, Saikeerthi and VijayDattaram Malkar in Bengaluru; Compiled by Dhanya Skariachan; Editing by Ronojoy Mazumdar)
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