RBI Shifts to Calibrated Tightening as Growth Outlook Remains Robust

Market watchers point to historical precedents, specifically the 2018 policy cycle, to argue that this tightening phase may be short-lived. Rajani Sinha, Chief Economist at CareEdge Ratings, suggests the current trajectory mirrors the October 2018 shift, which preceded a period of policy easing. Consequently, many experts anticipate only an additional 25 to 50 basis points of total hikes, provided headline inflation moderates as expected by the final quarter of the fiscal year.

The central bank’s decision is underpinned by a confident economic outlook, highlighted by a revised FY27 real GDP growth forecast of 7.1 percent. Ajay Kumar Srivastava, CEO of Indian Overseas Bank, noted that the change in policy stance effectively removes the possibility of near-term rate cuts, forcing banks to carefully balance credit demand with the rising cost of funds. Despite these higher costs, analysts at Crisil project bank credit growth to remain strong, potentially reaching 15.5 percent this fiscal year. For now, the focus shifts to whether the RBI can successfully anchor inflation without stifling the momentum of credit growth and broader economic activity.