“CALIBRATED TIGHTENING”
“The MPC (monetary policy committee) also decided to change the stance to calibrated tightening,” he said.
“It underscored that given the current conditions, rate cuts are off the table in the near term, and policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook.”
The hike was the first since February 2023 and analysts said the central bank will likely lift them again.
“The rising interest rate backdrop globally has … reduced RBI’s degrees of freedom. We see likelihood of another 50 bps hike this cycle,” said Garima Kapoor of Elara Capital.
Adding to the central bank’s calculations is pressure on the Indian rupee, which has been at near record lows over the past week.
To stem the fall, the RBI has rolled out an array of moves to woo dollar inflows, including a deposit scheme for the Indian diaspora that raked in around US$127 billion.
While the steps helped stem the rupee’s losses, the currency has faced fresh challenges as foreign investors continue to dump Indian equities and crude hovers around US$100 a barrel.
India, the world’s third-largest buyer of oil, normally sources about half of its crude through the Strait of Hormuz, which has been effectively closed since the beginning of the Middle East war.
Analysts say this makes India among the most vulnerable economies to a global energy shock, as higher crude and fertiliser prices drive up the import bill.
