RBI Maintains Tight Monetary Stance, Possible Repo Rate Hike

The Reserve Bank of India, under Governor Sanjay Malhotra, reiterated its commitment to a tight monetary policy amid ongoing inflation concerns. After a three‑day meeting of the Monetary Policy Committee, the RBI announced a calibrated tightening approach, signaling that any future policy action is likely to involve a repo rate increase or a hold, with no cuts on the horizon.

Malhotra highlighted that the length and intensity of any rate‑rise cycle will hinge on forthcoming data regarding headline inflation, core price trends, the spread of price pressures, and the impact of supply‑side shocks. The central bank expects average CPI inflation to remain near 5.8% over the next three quarters, while core inflation for the current fiscal year is projected at roughly 4.94%.

In line with the new stance, the standing deposit facility (SDF) rate has been set at 5.25%, and both the marginal standing facility (MSF) rate and the bank rate stand at 5.75%.

Despite global economic headwinds, the Governor noted that India’s economy stays resilient, with private consumption holding firm and discretionary spending providing a boost. Durable investment also appears solid across several indicators, though some weakness is observed in non‑durable consumer goods and domestic air travel demand.

The service sector continues to benefit from strong domestic and international demand, while both manufacturing and services PMI figures remained in expansion territory during the second quarter, underscoring the robustness of economic activity.

Following a comprehensive review of economic and financial conditions, the MPC unanimously voted to raise the repo rate by 25 basis points, setting it at 5.50%.