'Rate Cuts Are Off The Table’: RBI Guv Sanjay Malhotra Says Next Move Could Be Hike Or Pause As Inflation Risks Rise

Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday ruled out interest-rate cuts in the near term, saying the central bank's next move could be another increase or a pause depending on inflation and economic conditions.

His comments came after the Monetary Policy Committee (MPC) increased the repo rate by 25 basis points to 5.50% from 5.25% and shifted its stance from neutral to calibrated tightening.

Malhotra said rate cuts were "off the table" for now, indicating that future policy decisions would depend on evolving economic conditions.

The latest increase is the RBI's first repo rate hike since February 2023, when the policy rate was raised by 25 basis points to 6.50%.

Four of the six MPC members supported the shift to calibrated tightening, while two voted against the change.

RBI flags rising inflation pressures

Following the repo rate increase, the standing deposit facility rate was adjusted to 5.25%, while the marginal standing facility rate and Bank Rate were raised to 5.75%.

The RBI projected core inflation at 4.4% for FY27, marginally higher than its previous estimate of 4.3%. Consumer price index (CPI) inflation is expected to average 5.8% over the remaining three quarters of FY27.

Malhotra said the inflation outlook was no longer as benign as last year and stressed that monetary policy must remain alert to the second-round impact of supply shocks.

Crude oil, West Asia conflict add risks

The policy tightening comes amid higher crude oil prices, volatility in global financial markets and broadening domestic inflation pressures.

India's retail inflation stood at 4.82% in August, remaining above the RBI's 4% medium-term target for a third consecutive month.

Malhotra said the escalation of the West Asia conflict had weakened global economic sentiment and increased financial-market volatility.

He also highlighted continuing trade uncertainty and expectations of higher global inflation.

According to the Governor, tighter monetary conditions and the ongoing conflict pose downside risks to the global economy, while interest-rate changes will take time to transmit through the domestic economy.