What RBI's 'calibrated tightening' stance means
What's the story
The Reserve Bank of India (RBI) has raised its key repo rate by 25 basis points to 5.5%. This is the first hike in nearly four years, owing to rising inflation and strong economic growth. The central bank also shifted its stance from "neutral" to "calibrated tightening," indicating that more rate hikes may be possible in the future.
Clarification
'Stance shouldn't be seen as vote for next rate action'
RBI Governor Sanjay Malhotra clarified the new policy stance during a press briefing.
He said that the views of the Monetary Policy Committee (MPC) on future policy trajectory shouldn't be seen as a vote for the next rate action.
"Number one, we don't vote on it. It's not a vote. It's a view," he explained, adding that different members may have slightly different opinions about future policy paths.
Terminology
RBI clarifies meaning of terms like 'tightening,' 'accommodation'
Malhotra also explained that the RBI uses terms like "tightening," "accommodation," and "neutral" differently from their conventional cross-country meanings.
He said these terms are mainly used for policy guidance rather than indicating whether the policy is accommodative or restrictive.
The governor emphasized that the term "calibrated" was meant to indicate a more measured approach to monetary tightening, with future decisions based on incoming economic data.
Economic outlook
Rate cuts are off the table in near-term
Malhotra said that given the current conditions, "rate cuts are off the table in the near-term," and future policy action can only be a rate hike or a pause.
He also said India's economy is expected to remain resilient despite inflation not being as benign as last year.
The RBI has revised its Consumer Price Inflation (CPI) forecast for FY2027 to average 5.8% over the next three quarters.
Growth projection
GDP growth forecast raised to 7.1% for FY2027
Despite global macro uncertainties, the RBI has raised its FY2027 GDP growth forecast to 7.1% from an earlier estimate of 6.7%.
The Q2 projection has been revised to 7.2% from 6.4%, while the Q3 estimate is now at 6.9%, up from an earlier prediction of 6.5%.
The outlook for Q4 remains unchanged at 6.8%.