RBI MPC Decision Live: SBI MD Expects Credit Growth To Remain Strong After Repo Rate Hike

Lakshmi Iyer, MD & CEO of Bajaj Alts said investors are likely to continue favouring US markets over India for now. She noted that greater stability in bond yields and the rupee would be important for improving sentiment, adding that the rupee could remain vulnerable if concerns persist over a sustained period.

Abhimanyu Munjal, MD & CEO - Hero FinCorp says:

“The RBI’s decision to raise the repo rate by 25 basis points is a measured response to the evolving macroeconomic environment. Elevated crude prices, geopolitical uncertainty and tighter global monetary conditions have increased inflationary pressures, even as the Indian economy continues to demonstrate resilience.

For NBFCs, higher rates will have an impact on funding costs, making disciplined pricing, a diversified funding mix and prudent underwriting even more important. At the same time, underlying credit demand remains healthy. We therefore see this as an environment for calibrated, quality led growth, balancing opportunity with risk & profitability."

State Bank of India MD Ravi Ranjan projected that going forward, with inflation forecast elevated along with GDP growth rate seen higher, credit growth will be strong in FY27 as yields will increase for loans linked to external benchmarks, but deposits growth will need to be watched as it needs to be aligned with advances growth. 

If geopolitical situations do not normalise, senior economist at DBS Bank Radhika Rao, warned that there will be price pressures on India's food and non-food baskets. 

Going forward, moderation in global trade growth, elevated energy prices and persistent trade policy uncertainties pose upside risks to India’s current account deficit in 2026-27, RBI said in its review. 

The RBI has revised its FY27 GDP growth projection to 7.1%, up from the earlier estimate of 6.7%, reflecting a stronger growth outlook. For the quarters ahead, Q2 FY27 growth is projected at 7.2% versus 6.4% earlier, while Q3 growth is seen at 6.9%, up from 6.5%. The Q4 growth forecast remains unchanged at 6.8%. Meanwhile, the RBI expects Q1 FY28 GDP growth at 7.1%, slightly lower than the previous estimate of 7.3%.

In the aftermath, some recovery was seen in the benchmark indices, with Nifty trading 0.4% lower, and Sensex trading 0.25% lower. 

FY27 CPI inflation is now projected at 5.2%, up from the earlier estimate of 5.0%, reflecting a slightly higher inflation outlook. Meanwhile, Q2 CPI inflation is expected to come in at 4.9%, compared with the previous forecast of 4.7%, indicating modest upward pressure on consumer prices.

Governor Sanjay Malhotra said RBI is

• Now allowing inter-operability among NBFC account aggregators
• Constituting a consultation committee for the financial market

RBI CPI Projection 

• Q3 CPI Inflation Seen At 6% Vs 5.9% Seen Earlier 
• Q4 CPI Inflation Seen At 5.7% Vs 5.5% Seen Earlier 
• Q1 FY28 CPI Seen At 5.6% Vs 5.3% Seen Earlier 
• FY27 Core Inflation Seen At 4.4% Vs 4.3% Earlier

RBI Governor Sanjay Malhotra said that the signs of inflation becoming generalised are now visible, with core inflation and headline inflation rising. 

Real GDP growth is projected at 7.1%, compared to 6.7% seen earlier. The same projection remains for the first quarter of fiscal 2028. 

RBI Governor Sanjay Malhotra expects the supply chain disruption (caused by the ongoing West Asia conflict) to strain domestic economic activity going ahead. 

• 4 Out Of 6 MPC Members Voted For Stance Decision 
• FY27 Core Inflation Seen At 4.4% Vs 4.3% Earlier

(Source: Sanjay Malhotra speech) 

The RBI has changed its monetary policy stance to 'calibrated tightening' to underscore that given the current conditions, rate cuts are off the table, Governor Malhotra said. 

The RBI MPC has raised repo rate by 25 basis points to 5.5%, in-line with street expectations. 

Kanika Pasricha of Union Bank expects the RBI to raise the repo rate by 25 bps, marking the start of a rate hike cycle. She opposes a one-time 50 bps hike, favouring a smaller increase along with a change in stance. Pasricha said the RBI's policy guidance and liquidity commentary will be key to watch. She expects liquidity conditions to remain comfortable and believes the central bank may delay any CRR hike, while potentially using an OMO calendar to manage liquidity.

Current Key Lending Rates: 

• Repo rate: 5.25%
• Cash reserve ratio (CRR): 3.00%
• Statutory liquidity ratio (SLR): 18%
• Standing deposit facility (SDF): 5.00%
• Marginal standing facility (MSF) & bank rate: 5.50%

This is the best-case scenario for the markets, according to Kranthi Bathini, equity strategist at WealthMills Securities. "The market has already factored in a 25-basis-point rate hike. If the guidance indicates that the RBI is not planning an aggressive rate-hike cycle, then the indices are likely to rise, given that crude oil prices have also retreated from their recent highs," he said.

In such a scenario, the markets would also find relief in a bolstered rupee. A quarter-percentage hike would support the Indian currency amid the renewed spell of FII selloffs. For traders, pharmaceuticals, power, and engineering scrips would be attractive following a one-off rate hike, whereas banking and financial services stocks would come under some pressure, Bathini added.

What could trigger an extreme market reaction is the RBI escalating its inflation battle with a 50-basis-point rate hike. Such a move is expected to sharply raise bond yields, which would, in turn, trigger an exodus from the equity market, analysts say.

"A 50 bps hike may spook the markets and lead to much higher monetary transmission than the RBI may want. Why? We saw this happening last year when the RBI sounded a bit hawkish in its June policy-the RBI had to spend the next few policies trying to calm markets. If a 50 bps rate hike is done, it should be followed by dovish comments," said Sandeep Yadav, executive director and head of fixed income at DSP Mutual Fund.

Broad-Based Inflation

Headline consumer inflation has breached the Reserve Bank of India's 4% target for three consecutive months, quickening to 4.82% in August. Price pressures are actively broadening across the economy, with nearly half of the CPI basket now trading above the target threshold.

The forward-looking inflation trajectory signals further upside risks that warrant a preemptive hike. An adverse base effect is set to kick in during the second half of fiscal 2027, threatening to push headline prints higher.

The impact of El Nino is likely to worsen the inflation outlook, as experts believe the weather phenomenon would hit Rabi crops as well. Plantation during the Kharif season has already been affected due to deficient Monsoon rainfall.

A lower agricultural output can worsen the food price inflation, which has driven the overall CPI print in recent months.

This domestic pressure is compounded by global crude oil remaining elevated around $100 per barrel, keeping imported inflation risks alive.

The Reserve Bank of India (RBI) is widely expected to raise the repo rate by 25 basis points (bps) to 5.50% on Wednesday, with market participants closely watching the central bank's inflation outlook and guidance on the future course of monetary policy.

Indian stock market today is likely to remain cautious ahead of the RBI's policy decision, while rate-sensitive stocks could witness heightened volatility.

The expected rate hike comes against the backdrop of domestic inflation remaining above the RBI's 4% target, while elevated crude oil prices pose an additional external risk. Higher crude prices could exert further pressure on India's inflation trajectory and widen the current account deficit.

As of 8:21 a.m. IST GIFT Nifty indicated a lower opening for the equity benchmark, as it traded 0.4% down. 

Well... it depends. 

Equity market watchers are firmly expecting the Reserve Bank of India to raise benchmark lending rates for the first time in over three and a half years. Broad-based inflation, a weakening rupee, and resilient economic growth have cleared the decks for the central bank to tighten its monetary policy. The move is likely to be the single biggest factor determining the trajectory of Indian markets over the next few sessions.

The timing of the RBI rate decision is also significant, as Indian markets have been battered by a prolonged selloff, with the benchmark indices ending lower for eight straight weeks-marking the longest weekly losing streak since 2001. Since the start of this week, however, the markets have seen a relief rally, with relatively lower crude oil prices fueling a fightback from Dalal Street bulls.

Will an RBI rate hike reinforce the bearish momentum? The answer, say analysts, lies not in the Monetary Policy Committee rate decision itself, but in the guidance it shares.

To know more, read: Selloff To Resume? Not Rate Hike, But RBI Guidance Holds Key For Indian Markets Trajectory

Three-and-a-half years after it last raised the benchmark lending rates, the Reserve Bank of India is expected to resume the rate-hike cycle, as external headwinds have raised the risks linked to a prolonged spell of inflation.

The Monetary Policy Committee (MPC) of the central bank is likely to shift away from its accommodative approach, with analysts largely projecting a 25 basis points hike in the repo rate, or the rate at which the RBI lends to the commercial banks.

Around 60% of economists polled by Reuters poll expect the rates to rise by a quarter percentage point. This would raise the repo rate from 5.25% at present to 5.5%.

The Reserve Bank of India's Monetary Policy Committee (MPC) has unanimously decided to keep the policy repo rate unchanged at 5.25% in August, in line with the expectations of the vast majority of market observers. 

The Standing Deposit Facility (SDF) rate remains unchanged at 5%, while the Marginal Standing Facility (MSF) rate and the bank rate stands at 5.5%.

29 of 30 economists polled by Bloomberg said that the central bank's six-member Monetary Policy Committee, headed by Governor Sanjay Malhotra, is expected to leave the repurchase rate unchanged at 5.25%. Policymakers are also likely to retain a neutral stance as inflation remains well within the RBI's 2%-6% tolerance band.

Hello readers! RBI's MPC will grace us with its repo rate decision today, with majority of the experts expecting a rate hike to tackle the inflationary conditions in the country. 

Tensions are high, so are the stakes. I am Khushi, and I will take you through all the live updates of the MPC meeting today, so grab some tea and stay tuned!