Not A One-Off: RBI MPC Minutes Point To A Rate-Hike Cycle As Inflation Heads To 6% Ceiling

When the Reserve Bank of India pivoted towards a rate hike, for the first time in more than three-and-a-half years, the top question that emerged was whether this marked the start of a cycle, or is it a one-off measure in view of the external headwinds. 

The minutes of the Oct. 5-7 Monetary Policy Committee (MPC) meeting, released on Wednesday, shows a majority members backing the option of more policy tightening to tame the inflation, which is nearing the 6% ceiling of the RBI.

During the meeting, the MPC had unanimously voted to raise the repo rate by 25 basis points to 5.5%, and more crucially, it decided by a 4:2 vote to shift its stance from neutral to "calibrated tightening". The shift, which had triggered a slide in equity markets, was one of the crucial signal that the October move was the start of rate-hike cycle, rather than a single correction. The minutes of the meeting now make it more clearer.

The 6% Trigger

The clearest signal came from Deputy Governor Poonam Gupta, who is in charge of monetary policy. “At some point, a larger pass-through of input costs to output prices may materialise. Under these circumstances, it is conceivable that a further increase in the policy rate might be needed to keep inflation low and inflationary expectations anchored,” she said.

She pointed to the RBI's own record since the pandemic, noting that “whenever inflation has reached or breached the lower or upper tolerance limits, appropriate policy action has been taken. This has helped retain the credibility of the framework.”

That precedent matters because the MPC projects CPI inflation at exactly 6.0% in the October–December quarter, the top of the 2–6% tolerance band, before easing to 5.7% in Q4 and 5.6% in Q1 of 2027-28. Full-year inflation for 2026-27 is projected at 5.2%, up from 5.0% in August. Headline inflation rose to 4.8% in August from 4.5% in July.

Gupta said the pace, extent and duration of further action would depend on incoming data on inflation, its diffusion, and evidence of second-round effects. She acknowledged that inflation is currently driven mostly by external supply shocks, but argued against waiting: “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.”

ALSO READ: RBI MPC Highlights: GDP Optimism Meets Hawkish Reality, Rates Hiked Under 'Calibrated Tightening'

'Cuts Off The table”

Governor Sanjay Malhotra described the new stance as “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.”

He noted that 37% of items in the CPI basket recorded inflation above 4% in August, compared with “merely 20 per cent in March,” and said underlying inflation is expected to move above target in the coming months.

Executive Director Indranil Bhattacharyya went further, urging the committee to “set aside the ‘cautiousness bias' and act in a pre-emptive manner at this juncture rather than wait and watch.” He said calibrated tightening “conveys an unequivocally clear message that rate hikes or pause are the only options in the near term.”

External member Saugata Bhattacharya argued that real interest rates remain too low. “The current and forecast level of real interest rates do not seem consistent with levels required for ensuring price stability.” He also cautioned, however, that the “magnitude and pace” of further adjustment would need careful calibration given tighter domestic financial conditions.

The Dissenting Voices

Two external members backed the hike but opposed the change in stance. Prof. Ram Singh, Director of the Delhi School of Economics, wrote that he did not favour shifting to tightening “as it may signal an extended cycle of rate hikes.” He argued that current inflation is primarily supply-driven and that classic signs of overheating are “largely absent.” “For now, there is a case for incremental, mild repo rate hikes, not high-for-long rates,” he said.

Singh did, however, flag the RBI's September household survey, which showed the three-month median inflation expectation jumping to 9.9%.

Dr. Nagesh Kumar, who voted for the hike “keeping in mind the need to manage the inflationary outlook,” said that “in view of the continued geopolitical and trade policy uncertainties, I feel that a neutral stance remains appropriate.”

Notably, the MPC's next meeting is scheduled for Dec. 2-4, when October and November inflation prints will show whether the Q3 projection of 6% is on track.

ALSO READ: RBI Raises FY27 CPI Inflation Forecast To 5.2% From 5%; Hikes Repo Rate To 5.50%

Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.