- RBI MPC raised the repo rate by 25 bps to 5.50 per cent
- Stance changed to 'Calibrated Tightening', signalling a hawkish outlook.
- Experts foresee potential for more rate hikes, impacting lending rates.
RBI MPC unanimously decided to raise the repo rate by 0.25 per cent, or 25 basis points, to 5.50 per cent from 5.25 per cent. The rate hike was expected; however, the MPC's move to change its stance to ‘Calibrated Tightening' from neutral drew financial market experts' attention, as they termed this a ‘ Decisively Hawkish ’ move.
According to experts, the change in stance eliminates any chances of a rate cut in the near future and reflects surrounding concerns around rising inflation and elevated crude prices.
Meanwhile, a basic question may come to everyone’s mind: whether the change in stance to ‘Calibrated Tightening’ is a sign of a further increase in repo rates in its upcoming meetings in December 4, this year.
What Does ‘Calibrated Tightening’ Stance Mean? Expert’s Take
Rahul Singh, CIO - Fixed Income at LIC Mutual Fund, says that the MPC has turned decisively hawkish, raising the repo rate by 25 bps to 5.50 per cent and shifting its stance to calibrated tightening, effectively taking near-term rate cuts off the table.
“The move reflects growing concerns around inflation, with higher crude prices, monsoon risks and currency weakness, prompting the RBI to raise its FY27 CPI forecast to 5.2%,” Singh noted.
Overall, the policy reinforces a higher-for-longer rates outlook, with the bias tilted towards further tightening if inflation risks persist, he said further.
According to Anurag Mittal, President and Head - Fixed Income, UTI AM, C the shift to a 'calibrated tightening' stance makes for a balanced policy, considerably milder than a withdrawal of accommodation.
Also Read: RBI MPC: What Is Repo Rate And Why RBI Hiked It After 3.5 Years? How It Will Impact You | Explained
“The RBI is normalising rates to keep real rates positive rather than materially tightening financial conditions, and with close to 100 bps of hikes already priced in, most of the adjustment in yields is behind us. Investors should move into 2–4 year and moderate duration funds like short-term or corporate bond funds where current yields are highly attractive between 7.8-8 per cent without meaningful duration risk," Mittal noted.
The RBI move to hike the repo rate is a timely and hawkish move. The highlight of the policy, which was largely on the expected line the change in stance to ‘calibrated tightening ’, implying perhaps two more rate hikes in this tightening cycle, said Dr V K Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.
RBI Raises Repo Rate
Reserve Bank of India’s Monetary Policy Committee (RBI-MPC) on Wednesday raised the repo rate by 25 basis points to 5.50 per cent from 5.25 per cent. The hike was expected amid mounting inflationary pressures.
However, the development will lead to an increase in lending rates for home loans, vehicle loans, and existing EMIs. Industry experts say that this may hit the housing sector in the short term; however, the long-term perspective may remain resilient.