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RBI may pause after October hike, February rate increase more likely

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RBI may pause after October hike, February rate increase more likely

The RBI unanimously raised the repo rate by 25 bps to 5.5% in its October meeting and changed its stance from neutral to calibrated tightening. While the decision initially appeared hawkish, the post-policy press conference provided more clarity and tempered expectations of back-to-back hikes

RBI’s calibrated tightening stance may lead to a pause after the October hike, with the next 25 bps increase more likely in February 2027 than December. RBI raised its FY27 GDP growth forecast to 7.1% and CPI inflation forecast to 5.2%, with inflation projected to touch 6% in Q3 FY27. Twelve of 20 high-frequency indicators accelerated in Q3, led by power, fuel, vehicle and two-wheeler sales, personal-loan credit and GST collections. Large FCNR inflows have created a liquidity surplus, which RBI expects to fade before FY27-end; a CRR hike remains its least preferred option.

The Reserve Bank of India’s shift to a “calibrated tightening” stance may not signal a series of back-to-back rate hikes, with the central bank likely to pause after its 25 basis point increase in October and deliver only one more hike in the remainder of FY27. The next 25 bps increase is more likely in February 2027 than December, unless incoming inflation or growth data surprise the Monetary Policy Committee on the higher side. 5% in its October meeting and changed its stance from neutral to calibrated tightening. While the decision initially appeared hawkish, the post-policy press conference provided more clarity and tempered expectations of back-to-back hikes, according to Barclays India.



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