Rate raised 25 basis points as Malhotra rules out cuts
Reserve Bank of India Governor Sanjay Malhotra ruled out near-term rate cuts after the Monetary Policy Committee unanimously raised the policy rate by 25 basis points on October 7, 2026. The central bank adopted a stance of calibrated tightening to anchor inflation expectations.
Rate cuts off the table
The Monetary Policy Committee unanimously raised the policy rate by 25 basis points, while two members dissented on shifting the stance.
Governor Sanjay Malhotra explained that rate cuts are excluded for now: “What we are contemplating is either a pause or a rate hike.”
Inflation is projected to average 5.8 percent over the next three quarters, driven by persistent supply-side pressures, adverse base effects, and energy costs.
The Reserve Bank of India raised its crude oil baseline by $5 to $95 per barrel amid Middle East tensions.
Malhotra noted that 37 percent of CPI basket items exceed the 4 percent target, requiring policy vigilance.
Liquidity flush and currency defense
Despite tightening policy, domestic liquidity remains in surplus following roughly $135 billion in FCNR(B) inflows.
Deputy Governor Swaminathan J noted that bank credit expansion runs near decadal highs at 19 percent, well above the 10-year average of 12 to 14 percent.
Meanwhile, the rupee traded near ₹96.83 per dollar.
Malhotra dismissed concerns over currency weakness, attributing pressure to temporary external headwinds and asserting that foreign exchange reserves remain adequate.
Firm words, persistent contradictions
The rate increase directly confronts elevated inflation projections, but surplus liquidity blunts policy transmission.
Relying on transient foreign currency deposits to defend the rupee postpones necessary external adjustments.
Tightening will remain largely symbolic until the central bank aggressively drains excess cash balances.