RBI Shifts to Calibrated Tightening as Inflation Risks Mount

The central bank’s decision coincides with an optimistic outlook for the domestic economy, as the RBI raised its FY27 real GDP growth forecast to 7.1 percent. Rajani Sinha, Chief Economist at CareEdge Ratings, noted that the 'calibrated tightening' language echoes the bank's October 2018 policy, which saw no further hikes before pivoting back to easing. Consequently, CareEdge projects only an additional 25 to 50 basis points of increases, provided headline inflation moderates as expected from the fourth quarter.

Market sentiment suggests that while the era of near-term rate cuts has ended, the impact on credit remains a point of focus. Ajay Kumar Srivastava, CEO of Indian Overseas Bank, emphasized that policy paths now hinge on the evolution of growth and inflation. Despite the higher cost of borrowing, Crisil’s Dipti Deshpande expects bank credit growth to remain robust, projecting a rise of 14.5 to 15.5 percent this fiscal year. Banking leaders, including Canara Bank’s Brajesh Kumar Singh, maintain that the growth momentum provides a stable backdrop for the system to absorb these adjustments, provided liquidity management remains synchronized with the new rate environment.