RBI MPC Minutes Hint at Rate Hike or Pause as Two Members Oppose Policy Shift

Minutes of the Reserve Bank of India’s Monetary Policy Committee (MPC) show that policymakers see only two possibilities in the near term: further rate hikes or holding rates steady, as they grow more worried about inflation spreading beyond food and fuel. All six members agreed to raise the repo rate by 25 basis points to 5.50 percent, but Nagesh Kumar and Ram Singh did not support changing the policy stance from neutral to calibrated tightening.In its resolution, the MPC stated that rate reductions are not being considered for now, and that upcoming moves will either be another hike or a pause, depending on how conditions and the outlook evolve.

The committee revised its FY27 consumer price index (CPI) inflation projection upward to 5.2 percent from 5 percent estimated in August, and simultaneously lifted its GDP growth forecast to 7.1 percent from 6.7 percent. Inflation is expected to climb to 6 percent in the third quarter before moderating to 5.7 percent in the fourth quarter.Explaining the rate hike, the MPC noted that inflation and its prospects are no longer as comfortable as last year. It expects headline CPI inflation to average close to 5.8 percent over the next three quarters, with core inflation for the year projected at 4.4 percent.The minutes pointed to evidence that price pressures are becoming more widespread.

The proportion of CPI items with inflation above 4 percent rose to about 37 percent in August from 20 percent in March. Core inflation, excluding food and fuel, also moved up to 4.2 percent in August.The MPC reiterated that monetary policy mainly works by containing second-round effects such as inflation expectations and corporate pricing decisions. It observed some signs of higher inflation expectations and a generalisation of price increases, though it also said there were only limited indications that supply shocks were firmly feeding into pricing behaviour.

The committee highlighted risks arising from strong growth in money supply and credit, even though clear demand-driven inflation pressures are still not prominent. It added that how long and how far the rate-hike cycle goes will depend on underlying inflation trends, how broadly price pressures spread, the second-round impact of supply shocks, and demand conditions.Governor Sanjay Malhotra noted that the share of CPI items with inflation above 4 percent has risen sharply, indicating a move away from the previously benign inflation environment. He supported recalibrating the policy rate and said future steps would be guided by how growth and inflation actually play out.

Malhotra emphasised that the length and magnitude of the tightening cycle will be determined by real-time developments in growth and inflation and their outlook.The divergence within the committee was about the stance, not the rate hike itself. Kumar endorsed the increase but argued that, given ongoing geopolitical and trade policy uncertainties, it is better to retain a neutral stance.Singh too voted for the hike but opposed the shift to calibrated tightening, cautioning that such a move could be read as the start of a prolonged phase of rate increases.

He warned that expectations of substantial further hikes could dampen demand in interest-sensitive sectors and weigh on private investment.The remaining four members — Saugata Bhattacharya, Indranil Bhattacharyya, Poonam Gupta and Malhotra — supported both the rate hike and the move to calibrated tightening, favouring early action to prevent inflation from becoming entrenched.On the growth front, the MPC pointed to 7.8 percent expansion in Q1 FY27 and continued strength in domestic demand, investment, manufacturing and services exports. However, it also underlined risks from a weak monsoon, El Niño conditions and global geopolitical uncertainties.The next MPC meeting is slated for December 2–4, 2026.

Source: Moneycontrol