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* Key takeaway: The October MPC minutes signal a decisive shift in India’s monetary policy, with inflation risks increasingly dictating the policy direction. The RBI raised the repo rate by 25bp to 5.50% and shifted its stance from neutral to “calibrated tightening”. While all six members supported the rate hike, the stance decision exposed differences in their assessment of the appropriate policy response, with Nagesh Kumar and Ram Singh favoring a neutral stance. The minutes suggest that the easing phase has ended, with the focus shifting toward the extent and timing of further tightening.

* Broad agreement on inflation risks, differences on the policy stance: Governor Sanjay Malhotra emphasized that inflationary pressures were broadening beyond food and fuel, with the share of CPI items recording inflation above 4% rising from 20% in March to 37% in August, warranting action to contain second-round effects. Indranil Bhattacharyya also stressed the risks of persistent underlying inflation, inflation expectations, and cost pass-through, supporting a preemptive policy response. Poonam Gupta acknowledged that the shock was largely supply-driven and not yet fully entrenched, but argued that the projected rise in inflation and monetary-policy transmission lags warranted acting early. Saugata Bhattacharya highlighted resilient economic activity and credit growth alongside input-cost pressures, while cautioning against excessive tightening. In contrast, Nagesh Kumar and Ram Singh supported the rate hike but favored retaining a neutral stance. Dr. Kumar pointed to resilient growth, manufacturing and employment, arguing that uncertainty warranted policy flexibility. Prof. Singh warned that a tightening signal could prolong the rate-hike cycle and weigh on consumption, investment, and demand, despite rising core inflation and expectations. Overall, members broadly recognized the need to contain inflation, but differed on whether the RBI should explicitly signal further tightening or preserve greater flexibility.

* Inflation risks becoming harder to ignore. The RBI expects CPI inflation to average 5.2% in FY27, with inflation averaging around 5.8% over the next three quarters. Rising core inflation, a broader spread of price increases and elevated household inflation expectations raise concerns about second-round effects. El Niño-related risks to rabi output could add to food inflation, while rupee depreciation increases the risk of imported price pressures. Meanwhile, escalating tensions in West Asia and renewed attacks on energy infrastructure and shipping have heightened concerns over oil supply disruptions, adding to price pressures. At the same time, the RBI raised its FY27 GDP growth forecast to 7.1% from 6.7%, suggesting that resilient domestic activity provides some room to prioritize price stability.

* Our opinion: The tightening cycle has further to run. We expect cumulative rate hikes of 100bp from the pre-October repo rate of 5.25%, taking the repo rate to 6.25%. The October hike and shift to calibrated tightening mark a hawkish pivot, with rate cuts effectively off the table in the near term. We expect a further 25bp hike in December, taking the repo rate to 5.75%, followed by another 50bp over subsequent meetings. The pace will depend on the evolution of crude oil prices, inflation diffusion, core inflation, household expectations and currency conditions.

* Persistent inflation risks, elevated global bond yields, dollar strength and foreign portfolio outflows are likely to keep domestic bond yields elevated and exert continued pressure on the rupee. With the 10-year G-sec yield currently at around 7.4%, we expect it to rise towards 7.5–7.6% by end-FY27. Meanwhile, the rupee remains vulnerable to depreciation amid a strong dollar, elevated US yields and persistent capital outflows. We expect the USD/INR to average around 96 in FY27.

Our view

* The October MPC minutes suggest that India’s monetary policy has entered a new phase, characterized by greater vigilance toward inflation persistence and a willingness to act before supply-side shocks become embedded in underlying prices. The unanimous rate hike underscores the committee’s shared concern about the inflation outlook, while the disagreement on the policy stance highlights the trade-off between anchoring inflation expectations and preserving growth momentum.

* Inflation risks remain elevated despite some moderation in crude oil prices from their September highs, with geopolitical uncertainty keeping the outlook volatile. The RBI’s projection that inflation will average around 5.8% over the next three quarters, remaining above 5.5% in each quarter, points to a less benign trajectory. Rising inflation diffusion, firmer core inflation, and elevated household inflation expectations increase the risk of second-round price pressures, while El Niño-related risks to rabi output could add to food inflation. Resilient domestic growth provides the RBI with room to prioritize price stability, while elevated US yields, dollar strength, and persistent foreign portfolio outflows are adding to pressure on the rupee and increasing imported inflation risks.

* We believe the RBI retains room for further measured tightening, particularly if elevated crude oil prices, food inflation and currency pressures sustain the upward momentum in headline and core inflation.

* Base case: We expect the RBI to deliver a cumulative 100bp rate hike over the current tightening cycle, taking the repo rate to 6.25%. The 25bp hike in Oct’26, alongside the shift in stance from neutral to “calibrated tightening”, marks a clear hawkish pivot, with rate cuts effectively off the table in the near term. We expect a further 25bp hike in Dec’26, taking the repo rate to 5.75%, followed by another 50bp of tightening over subsequent meetings.

* Ultimately, the October minutes reinforce a policy framework in which inflation risks dominate near-term decisions, but the extent of monetary tightening remains conditional rather than predetermined. For financial markets, this suggests continued pressure on borrowing costs and bond yields, with incoming inflation data and the RBI’s assessment of inflation persistence likely to be the principal determinants of the policy path.

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