Research Report

The Monetary Policy Committee (MPC) unanimously hiked the policy repo rate by 25 bps to 5.50% in October 2026, in line with ICRA’s expectations, after a gap of more than three years. Additionally, it changed the policy stance to ‘calibrated tightening’ from neutral, with a majority vote of 4:2, thereby implying that the next move on rates would either be a hike or a pause. The tone of the policy document was expectedly hawkish, with the MPC highlighting elevated risks to inflation since the last meeting in August 2026. This manifested into an upward revision in the CPI inflation forecast for FY2027 by 20 bps to 5.2%, even as the GDP growth projection for the fiscal was raised by 40 bps to 7.1%. Looking ahead, ICRA expects another 25 bps rate hike in the December 2026 meeting, amid expectations of further generalisation of inflationary pressures. Thereafter, we do not foresee further rate tightening, unless there are sizeable negative surprises on the inflation front.

• MPC raised policy repo rate by 25 bps in October 2026: The Committee noted that while the economic growth momentum is likely to remain strong in FY2027, inflationary pressures will continue to persist, with the headline CPI inflation expected to average at ~5.8% over the next three quarters, along with uptick in core inflation and evidence of generalisation of inflationary pressures.
  
• FY2027 growth-inflation forecasts revised: The MPC raised the FY2027 GDP growth forecast by 40 bps to 7.1%, in line with ICRA’s baseline estimate, amid a sharp upward revision in the estimate for Q2 (by 80 bps to +7.2%) and Q3 (by 40 bps to +6.9%).