RBI Governor Sanjay Malhotra said in minutes of the central bank’s recent policy meeting that the Indian economy’s growth rate for 2026-27 has been raised to 7.1% from 6.7% estimated in August, but rising inflationary pressures pose a risk to this estimate. Malhotra said that the Indian economy has shown remarkable strength amid the ongoing turmoil at the global level. Growth is now projected at 7.1% for the full year 2026-27, up 40 bps (basis points) from the August estimate of 6.7%. However, inflationary pressures are increasing.

After four years the interest rate was increased

The Reserve Bank of India on Wednesday released the minutes of the Monetary Policy Committee (MPC) meeting held between October 5 and 7. Along with the governor, five other MPC members also voted in favor of raising the repo rate by 25 bps to 5.5%. After a period of almost four years, the rate has been increased. The country’s growth rate remains better than expected, inflation risks are rising again, and the global interest rate environment is making it difficult for India to maintain a large policy gap. This is the first time the rate has been increased since February 2023 (the rate was then 6.6%). This is a different trend from RBI’s ‘rate-cut cycle’.

The economy can withstand austerity policies

The central bank is now confident that the economy can withstand some degree of monetary tightening without a major negative impact on growth rates. According to the minutes (details) of the MPC meeting released on Wednesday, the governor said there are signs of a broad-based inflation pick-up. In August, 37 percent of the items included in the CPI basket had inflation above 4 percent, compared to just 20 percent in March.

What are the expectations ahead?

If experts are to be believed, the policy rate may increase in the coming days due to inflation. This means that the repo rate may be hiked once again by 0.25 percent at the December policy meeting. Some brokerage firms have estimated a 0.25 percent increase in the February policy. This means an increase of .75 percent is likely in three consecutive policy meetings.