After unanimously voting to increase the policy repo rate by 25 basis points (bps) to 5.50%, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has signalled that rate cuts are off the table in the near-term as inflationary pressures mount. The pace and extent of further tightening would depend on the evolving growth-inflation outlook, said the minutes of the MPC meeting held on October 6.The decision comes amid rising crude oil prices, weather-related disruptions to food supplies, a deficient monsoon and rupee depreciation, with the RBI projecting retail inflation at 5.2% for 2026-27, up from its earlier forecast of 5%. While some MPC members cautioned that aggressive rate hikes could weigh on consumption and private investment, others argued that pre-emptive action was necessary to contain inflation expectations and preserve credibility of the inflation-targeting framework.The MPC also changed its stance to calibrated tightening in October policy review.RBI Governor Sanjay Malhotra said the duration and extent of the rate hiking cycle would be contingent on the actual growth-inflation developments and outlook, especially that of underlying inflation, broadening of price pressures, second round effects of supply shock, and the impact of demand impulses. “Nevertheless, I feel it is appropriate to change the stance to calibrated tightening, essentially signalling that rate cuts are off the table in the near-term and policy action ahead can only be a rate hike or a pause, depending on the evolving circumstances and the outlook,” he said, as per the minutes.Inflation outlookInflationary pressures are building up. Headline CPI is projected to touch the upper tolerance band in Q3, and remain significantly above 5% in the next two quarters, the governor said.According to Saugata Bhattacharya, an MPC Member, since the August ‘26 review, global financial conditions have tightened significantly. Energy prices have again risen. El Niño led weather disruptions have resulted in an increase in prices of many agricultural commodities, particularly of edible oils, sugar and, to an extent, cereals.Most major central banks, responding to global macro-financial conditions, have adjusted their policy rates upwards. Benchmark yields have risen sharply across multiple G20 countries, and research reports suggest this is partly a result of rising term premia now sought by investors, he said.Story continues below this adThe inflationary outlook remains challenging due to a combination of factors, including deficient monsoon, rising crude oil prices, precious metals prices remaining at elevated levels, and exchange rate depreciation, leading to a revision of the forecast for headline inflation for 2026-27, MPC Member Nagesh Kumar said. While inflation is driven largely by supply-side factors and does not show any signs of overheating of the economy nor of generalisation, it is important to manage inflationary expectations, Kumar said.Drop cautiousness bias, ‘Act in a pre-emptive manner’Ram Singh, another MPC Member, said expectations of significant rate increases can undermine demand not only in interest rate-sensitive sectors such as vehicles, real estate, and discretionary spending, but also drag on recent momentum in private investment. “Coming on the heels of stress on the farm sector due to below-normal rains and El Niño, rising input costs and global uncertainty, significant rate hikes would hurt profit margins and the sustainability of capex plans of large and small firms,” Singh said.“The inflation outlook merits greater attention, given supply side pressures from crude and food prices are unlikely to relent quickly. With demand holding strong and in the wake of strong growth in monetary and credit aggregates, the interplay of both supply and demand factors could ratchet up inflation pressures significantly in the period ahead. Therefore, I feel it is better to set aside the “cautiousness bias” and act in a pre-emptive manner at this juncture rather than wait and watch,” said Indranil Bhattacharyya, Member, MPC.RBI Deputy Governor and MPC Member Poonam Gupta said, “in the post-pandemic inflation targeting period, whenever inflation has reached or breached the lower or upper tolerance limits, appropriate policy action has been taken.” This has helped retain credibility of the framework and kept inflation expectations aligned to the target. “Thus, rather than waiting any longer, in view of rising inflation and resilient growth, I favour raising the policy repo rate by 25 bps in this policy,” Gupta said.