RBI Governor Rules Out Near-Term Rate Cuts, Shifts Policy Stance to 'Calibrated Tightening'

Following the three-day meeting of the Monetary Policy Committee (MPC), Malhotra announced a change in the central bank's policy stance to 'Calibrated Tightening'.

He said the timing and extent of any future rate hikes would depend on developments in growth and inflation, particularly underlying inflation, the extent to which price pressures broaden and how quickly supply-side shocks feed into the wider economy.

The RBI projected headline Consumer Price Index inflation to average nearly 5.8 per cent over the next three quarters. Core inflation was projected at 4.94 per cent for the current financial year.

With the policy stance shifting towards tightening, Malhotra said the central bank would assess incoming economic data and the inflation outlook before determining its next course of action.

The RBI said the Indian economy remained resilient, with private consumption continuing to hold up and discretionary spending providing support. Fixed investment also remained strong, supported by various related economic indicators.

However, the Governor noted some weakness in areas including non-durable goods consumption and domestic air passenger traffic.

Activity in the services sector remained steady and broad-based, supported by domestic as well as external demand. Both manufacturing and services Purchasing Managers' Index readings remained in expansion territory during the second quarter.

After assessing macroeconomic and financial conditions and the outlook, the MPC unanimously voted to raise the policy repo rate by 25 basis points to 5.50 per cent.

Following the decision, the Standing Deposit Facility rate was adjusted to 5.25 per cent, while the Marginal Standing Facility rate and the Bank Rate were set at 5.75 per cent.