[Under Section 45ZL of the Reserve Bank of India Act, 1934] The sixty third meeting of the Monetary Policy Committee (MPC), constituted under Section 45ZB of the Reserve Bank of India Act, 1934, was held during October 5, 2026. 2. The meeting was chaired by Shri Sanjay Malhotra, Governor and was attended by all the members – Dr. Nagesh Kumar, Director and Chief Executive, Institute for Studies in Industrial Development, New Delhi; Shri Saugata Bhattacharya, Economist, Mumbai; Professor Ram Singh, Director, Delhi School of Economics, Delhi; Dr. Poonam Gupta, Deputy Governor in charge of monetary policy and Shri Indranil Bhattacharyya, Executive Director (the officer of the Reserve Bank nominated by the Central Board under Section 45ZB(2)(c) of the Reserve Bank of India Act, 1934). 3. According to Section 45ZL of the Reserve Bank of India Act, 1934, the Reserve Bank shall publish, on the fourteenth day after every meeting of the Monetary Policy Committee, the minutes of the proceedings of the meeting which shall include the following, namely: -
the resolution adopted at the meeting of the Monetary Policy Committee; -
the vote of each member of the Monetary Policy Committee, ascribed to such member, on the resolution adopted in the said meeting; and -
the statement of each member of the Monetary Policy Committee under sub-section (11) of section 45ZI on the resolution adopted in the said meeting. 4. In the light of evolving developments on the global and domestic front, the MPC reviewed in detail the staff’s macroeconomic projections that included inputs from survey results and stakeholder consultations. The MPC also reviewed alternative scenarios around various risks to the outlook. Drawing on the above and after extensive discussions on the stance of monetary policy, the MPC adopted the resolution that is set out below. Resolution 5. The Monetary Policy Committee (MPC) held its 63rd meeting from October 5 to 7, 2026, under the chairmanship of Shri Sanjay Malhotra, Governor, Reserve Bank of India. The MPC members Dr. Nagesh Kumar, Shri Saugata Bhattacharya, Prof. Ram Singh, Dr. Poonam Gupta and Shri Indranil Bhattacharyya attended the meeting. 6. After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC voted unanimously to increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 bps to 5.50 per cent. Consequently, the standing deposit facility (SDF) rate stands adjusted at 5.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 5.75 per cent. The MPC also decided to change the stance to calibrated tightening. Growth and Inflation Outlook Global Outlook 7. Since the last MPC meeting in August 2026, the re-escalation of the conflict in West Asia and the consequent sharp volatility in crude oil prices has kept the global economy in a state of flux. Global growth has remained resilient. Acceleration of inflation in key economies has prompted a shift towards hawkish monetary policy. The US Fed hiked by 25 bps in September. The Fed commentary thereafter along with rate tightening by major systemically important central banks have reinforced expectations of higher global policy rates. Tighter global financial market conditions coupled with fiscal sustainability concerns in major economies are keeping global bond yields at record high levels. With a resolution of the West Asia conflict remaining elusive, significant downside risks to the global outlook remain, including further tightening of global financial conditions, continuing elevated AI-related asset valuations and high public debt. Domestic Outlook 8. Notwithstanding these persisting global headwinds, the Indian economy has remained resilient. As per National Statistics Office (NSO) estimates, real GDP growth in Q1:2026-27 at 7.8 per cent was higher than expected. Strong private consumption and fixed investment, rebound in merchandise exports and sustained buoyancy in services exports supported growth. On the supply side, the manufacturing sector grew at a robust pace. Services sector activity strengthened further, owing to buoyant domestic and external demand. 9. In Q2, available high frequency indicators for July-August suggest sustained momentum in domestic economic activity. Domestic demand remains resilient and is well supported by robust external demand with merchandise exports registering double-digit growth. 10. Looking ahead, global economic uncertainty will continue to have some bearing on domestic economic activity. While energy prices and supply chain pressures have continued, their near-term trajectory remains uncertain amidst the lingering West Asia conflict. Their adverse impact is being contained with active diversification of supply sources. Deficient south-west monsoon and strong El Niño conditions pose risks to agriculture sector’s outlook and rural demand, although healthy buffer of foodgrains and proactive policy interventions by the government are expected to mitigate the impact. Furthermore, continuing momentum in services and broadly stable employment conditions are likely to support urban demand. Strong capacity utilisation, robust credit flows and the government’s thrust on infrastructure are expected to sustain investment activity. While services exports are expected to remain buoyant, bilateral trade agreements should boost merchandise exports. 11. Taking all these factors into consideration, real GDP growth for 2026-27 is projected at 7.1 per cent, with Q2 at 7.2 per cent; Q3 at 6.9 per cent and Q4 at 6.8 per cent. Real GDP growth for Q1:2027-28 is projected at 7.1 per cent. The risks are evenly balanced (Chart 1). 12. CPI inflation increased to 4.8 per cent in August 2026 from 4.5 per cent in July. While the increase has been predominantly on account of higher inflation in food and fuel groups, core inflation has also picked up indicating some signs of widening price pressures. Food price increases have become more broad based along with notable spikes in certain items such as sugar and onion. The uptick in fuel inflation in August largely reflected unfavourable base effects. Core inflation increased to 4.2 per cent and core inflation, excluding precious metals, increased to 2.9 per cent in August. The weighted share of items in headline CPI recording inflation above 4 per cent increased steadily to about 37 per cent in August. 13. The near-term outlook on inflation points towards continued pressures from supply side on account of the deficient monsoon, ongoing El Niño conditions and high energy and other commodity prices, the pass through of which is still continuing. Considering all factors, CPI inflation is projected to be 5.2 per cent for 2026-27 with Q2 at 4.9 per cent; Q3 at 6.0 per cent; and Q4 at 5.7 per cent (Chart 2). Inflation for Q1:2027-28 is projected at 5.6 per cent with risks being evenly balanced. Core inflation is projected at 4.4 per cent for 2026-27. Rationale for Monetary Policy Decisions 14. The MPC noted that the global context on account of geopolitical developments remains challenging. Nonetheless, the Indian economy has been strong. The economic momentum remains broad-based. The economy is expected to remain resilient. 15. In the light of available data, it is clear that inflation and its outlook are not benign as they were last year with headline CPI inflation expected to average almost 5.8 per cent in the next three quarters and core inflation projected at 4.4 per cent this year. In this milieu, recalibrating the policy rate is imperative. 16. As regards supply side inflation, monetary policy primarily acts by curtailing second round effects (inflation expectations and firm level pricing behaviour, etc.), which take time to manifest and are difficult to extract from available data. Apart from data related to inflation expectations and firm level pricing behaviour, indicators of generalisation of inflation like core inflation and diffusion indices are used for this purpose. It may, however, be kept in mind that it is difficult to distinguish between the second-round effects and the indirect impact of supply side pressures (in production cost through energy and other inputs) as both are present in these indicators. While there is some evidence of elevated inflation expectations and generalisation of inflation, there are only limited signs of supply side pressures getting embedded in pricing behaviour. 17. Similarly, while there is limited evidence of demand side pressures, risks in view of strong growth in monetary and credit aggregates exist. 18. Considering all these factors, the MPC unanimously voted to increase the policy repo rate by 25 basis points to 5.50 per cent. The MPC also decided to change the stance to calibrated tightening. It only signals that given the current conditions, 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 conditions and the outlook. The duration and extent of rate hike cycle would be contingent on the actual growth-inflation developments and outlook, especially that of underlying inflation, the extent of broadening of price pressures and second round effects of the supply shock, as also the impact of demand impulses. 19. Two members - Dr. Nagesh Kumar and Prof. Ram Singh - were of the view that the stance be retained at neutral. 20. The MPC remains committed to its price stability mandate and will endeavour to progressively align inflation with its target. 21. The minutes of the MPC’s meeting will be published on October 21, 2026. 22. The next meeting of the MPC is scheduled for December 2 to 4, 2026. Voting on the Resolution to increase policy repo rate by 25 bps to 5.50 per cent | Member | Vote | | Dr. Nagesh Kumar | Yes | | Shri Saugata Bhattacharya | Yes | | Prof. Ram Singh | Yes | | Shri Indranil Bhattacharyya | Yes | | Dr. Poonam Gupta | Yes | | Shri Sanjay Malhotra | Yes | Statement by Dr. Nagesh Kumar 23. The 7.8% GDP growth logged by the Indian economy in Q1:FY2027, coming as it does against the backdrop of the West Asia conflict and continued trade policy uncertainties, is impressive, highlighting its resilience. The Q1 growth was underpinned by robust manufacturing growth of 9.2%, which is encouraging because of its direct and indirect job-creating effects. There are indications that the growth momentum is being carried through into Q2, as borne out by a healthy rate of gross fixed capital formation (GFCF), which was 34.3% in Q1:FY27 compared to 31.4% in Q1:FY26. If this 290-basis-point jump sustains, it would be very good for the economy, paving the way for the private investment cycle to gain momentum and drive industrial growth. The expansion of industrial credit also supports the view that the private investment cycle may finally be taking off. Similarly, the capital goods sector has been posting double-digit growth for the past 4 months, which is consistent with the robust GFCF and credit growth. A number of big investment proposals for data centres are coming up from big IT majors/global tech companies, and GCCs are augmenting their presence in the country. Hence, the projected growth for FY2026-27 has been raised to 7.1% from 6.7% at the time of the previous policy. 24. Merchandise exports have also shown robust growth in spite of global trade policy uncertainties, along with those of services exports, helping to keep the current account deficit in a manageable range of around 1% of GDP. The FCNR(B) scheme of RBI has helped to bring substantial inflows of NRI deposits which, besides helping to stabilise the exchange rate of the rupee, will lead to a significant balance of payments surplus in 2026-27. Going forward, the India-EU FTA, among others, which is likely to come into force towards the beginning of 2027, is likely to boost India’s exports, especially of labour-intensive goods, by giving Indian products a level playing field vis-à-vis peers such as Vietnam and Bangladesh, for the first time. 25. The inflationary outlook, on the other hand, remains challenging due to a combination of factors, including the 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 by 20 basis points from 5.0% at the last policy to 5.2% and core inflation by 10 basis points to 4.4%. 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. 26. Keeping in mind the need to manage the inflationary outlook, I vote for a 25-basis-point increase in the repo rate. In view of the continued geopolitical and trade policy uncertainties, I feel that a neutral stance remains appropriate. Statement by Shri Saugata Bhattacharya 27. 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. 28. 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.1 29. In India, since the August 2026 review, some of the upside risks to inflation have started materialising. Data increasingly suggests that price pressures are getting entrenched into the economic system. Input prices, recorded in Wholesale Price Indices, have been printing close to 9% yoy. Media reports and enterprise surveys suggest that these input costs are being passed on to consumer prices. While ‘underlying inflation’ has thus far remained more subdued, and might implicitly be a signal of some residual demand weakness, trends in CPI inflation components indicate that a presumed slack relative to the potential output – if a slack at all even exists at present – appears to be closing. 30. MPC growth forecasts and official estimates reinforce current data, market reports, media news and forward-looking surveys suggesting that economic activity is – and will remain – resilient. High bank credit growth, earlier mostly restricted to the retail segment and to an extent MSMEs, have now dispersed into virtually all sectors and segments. 31. India’s external balance, however, remains a concern. The balance of payments shows some vulnerabilities, particularly given the tight global financial environment. At the very least, maintaining a certain gap between India and G7 interest rates is important for attracting debt capital flows. At the same time, too rapid a policy rate adjustment risks constricting growth and hence growth-led capital flows. 32. In this context, might the broad monetary policy environment in India now be too accommodative? Inflation risks and financial markets suggest it is. Growth is resilient enough to permit a closer focus on an incipient inflation persistence. The current and forecast level of real interest rates do not seem consistent with levels required for ensuring price stability. The real natural rate of interest (pertaining to Q4 of FY23-24) estimated this to be 1.4-1.9%. It is very likely that the slack of current output from potential will have shrunk, compared to the immediate post-COVID period. 33. Hence, the totality of information indicates a strong economic case at this time for tightening monetary policy, to bring inflation closer to the target sooner rather than later and anchor inflation expectations. 34. Domestic financial conditions have tightened significantly. This, to an extent, mitigates the need for large domestic monetary policy actions. Hence, the magnitude and pace of monetary policy adjustment needs to be carefully calibrated to balance the multiple trade-offs from these actions – inflation vs growth, credit vs deposits, domestic vs external and more. A data dependent approach is best to deal with the broad range of possible outcomes in this uncertain economic environment. 35. Hence, I vote to increase the policy repo rate by 25 basis points. Given the upside risks to inflation, it is also appropriate to change the stance to calibrated tightening. Statement by Prof. Ram Singh 36. Since the last MPC meeting, inflationary pressures have hardened in most leading economies, prompting their monetary authorities to adopt a hawkish stance. Domestic inflation and its near-term trajectory have also turned less benign. Evidence suggests inflation has generalised beyond the direct effects of fuel, energy, and commodity prices since the onset of the West Asia conflict. Emerging evidence points to indirect effects (firms passing these cost increases onto the prices of the goods and services they provide). Diffusion indices and the core inflation trajectory provide some evidence. The number of items in the CPI basket rising above 4% has increased. The core is projected at 4.4 per cent this financial year. Non-food, non-fuel core inflation also climbed to 4.2% in August 2026, at least in part because producers raised their selling prices. Furthermore, the RBI’s September household survey showed the 3-month median inflation expectation jumped to 9.9%, reflecting households' anticipation of a higher cost of living. 37. These effects and their impact on headline CPI have been moderate so far. However, combined with possible demand-side pressures, driven by strong credit growth, the economy faces the risk of supply-side pressures becoming more widespread in the coming months. Headline CPI inflation is expected to remain elevated, averaging almost 5.8 per cent over the next three quarters, nudging the upper limit of the FIT tolerance band. Additionally, at the current repo rate level, the projected inflation trajectory will render the real rate negative, generating perverse saving-consumption trade-offs. 38. To realign the inflation trajectory towards the target, and from the real repo rate perspective, a calibrated increase in the repo rate is needed. The duration and magnitude of the rate hike required to meet these objectives would depend on the emerging growth-inflation outlook. The MPC will have to remain vigilant about the pace of inflation generalisation to respond in a timely and effective way. For now, there is a case for incremental, mild repo rate hikes, not high-for-long rates. 39. I do not favour shifting the stance from neutral to tightening mode, as it may signal an extended cycle of rate hikes. This, in turn, can neutralise the benefits of growth-supportive monetary and fiscal policies in the recent past. Current inflation is primarily due to supply-side factors, rising fuel, food, and commodity prices, and their effects. The classic signs of economic overheating —such as a wage-price spiral or demand-driven capacity overstretch or abnormal growth in private consumption and capex —are largely absent. The Q1 growth rate (7.8%) is in line with the average growth rate in recent years (7.9% during FY 2021-22 to 2025-26). Growth is expected to moderate in the coming quarters, especially in sectors like real estate and automobiles, as the GST boost peters out. PMI manufacturing and services both show some signs of moderation. 40. 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. 41. Therefore, I vote for a 25-bps increase in the repo rate to 5.50% without changing the stance. Statement by Shri Indranil Bhattacharyya 42. Notwithstanding an adverse external backdrop and despite an erratic domestic monsoon, the Indian economy has fared much better than expectations with economic activity on a sound footing and poised to register more than 7 per cent growth in 2026-27. 43. On the inflation front, there are, however, reasons for concern. Inflation is clearly on the rise, averaging about 5.8 per cent in the immediate three quarters, driven by food and fuel prices. The weighted share of items in the CPI basket experiencing inflation above 6 per cent has increased noticeably in August, as suggested by the diffusion index. Core inflation (CPI excluding food and fuel) also indicates a similar shift in distribution, albeit of a lower magnitude. The momentum of underlying inflation is also high as evident from the weighted median and trimmed mean measures in recent months.2 These are corroborated by the latest round of survey findings which suggests that inflation expectations are significantly higher in both the urban and rural areas.3 Moreover, there is increasing evidence of pass-through of input cost pressures in certain segments such as restaurants and cooked meals. PMI surveys and producer price indices also suggest some pent-up pass-through. Greater pass-through is expected going ahead, especially when demand conditions are strong. 44. Therefore, 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”4 and act in a pre-emptive manner at this juncture rather than wait and watch. Accordingly, I vote for a 25-bps policy rate hike. Going ahead, the trajectory of the policy path would be calibrated based on the evolving macroeconomic developments and emerging inflation prints. Given the present global and domestic circumstances, rate cuts are not an option in the near term. Therefore, I feel it is also appropriate to change the stance from neutral to calibrated tightening. While the neutral stance is consistent with all three policy options (cut, hike and pause), calibrated tightening conveys an unequivocally clear message that rate hikes or pause are the only options in the near term, depending on the evolving outlook. Besides signalling, this would also reaffirm our commitment to price stability as the primary objective of monetary policy. Statement by Dr. Poonam Gupta 45. The global backdrop has continued to evolve since the last policy meeting, feeding heightened uncertainty. Two developments in particular stand out: first, the flare-up in the West Asia conflict and persistently elevated oil prices; second, the implications of high demand for financial resources from sovereigns and the private sector in some advanced economies on global interest rates and cost of funding in other countries including emerging market economies. 46. Domestically, the economy has done exceptionally well, growing at 7.8 per cent in Q1:2026-27, well above the forecast in the August policy. A range of high-frequency indicators support the growth momentum in Q2 as well. Meanwhile, inflation, primarily driven by food, fuel and gold, with limited generalisation to core, has inched up to 4.5 per cent in July and further to 4.8 per cent in August. Consequently, the MPC has revised upward its inflation forecast to 5.2 per cent while increasing real GDP growth forecast for 2026-27 to 7.1 per cent. Inflation is projected to accelerate to 6.0 per cent in Q3 before moderating to 5.7 per cent in Q4 and 5.6 per cent in Q1 next year. 47. At this point in time, inflation is mostly driven by external supply-side shocks, with insignificant signs of it becoming entrenched or impacting inflation expectations. Yet, with projections indicating the likelihood of headline inflation hitting the upper tolerance limit of 6 per cent, one may not want to wait for more definitive evidence of generalisation, and instead be mindful of the fact that monetary policy works with a lag. 48. In fact, 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 the credibility of the framework and has 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. 49. Meanwhile, inflationary pressures are mounting around the world, driven by high fuel and commodity prices. Domestically, weather-related adversities and global oil and commodity prices may continue to put upward pressure on headline inflation. At some point, a larger pass-through of input costs to output prices may materialise. Under these circumstances, it is conceivable that a further increase in the policy rate might be needed to keep inflation low and inflationary expectations anchored. The pace, extent, and duration of such actions would depend on the incoming data on inflation, its diffusion, and evidence of second-round effects. 50. Hence, I propose to change the stance to calibrated tightening, which would be consistent with any such warranted future course of action. Statement by Shri Sanjay Malhotra 51. Amidst the turbulent global backdrop, the Indian economy has shown remarkable resilience. Growth for the full year 2026-27 is now projected at 7.1 per cent, 40 bps higher than the projection of 6.7 per cent in August. 52. Inflationary pressures are, however, building up. Headline CPI is projected to touch the upper tolerance band in Q3 and remain significantly above 5 per cent in the next two quarters. 53. In terms of the diffusion index, there are increasing signs of generalisation of inflation as 37 per cent of the commodities in the CPI basket had inflation above 4 per cent in August – it was merely 20 per cent in March. While core inflation increased from 3.9 per cent in July to 4.2 per cent in August, core inflation, excluding precious metals, increased to 2.9 per cent in August, driven by a strong momentum of 0.5 per cent. Underlying inflation, as measured by core ex precious metals is also anticipated to move above target in the coming months. This indicates a normalisation of inflation from the benign levels seen earlier. 54. As regards supply side inflation requiring a monetary policy response, it is pertinent to mention that monetary policy primarily acts by curtailing second round effects (wage expectations and firm level pricing behaviour) of a supply shock. It is difficult to distinguish between the second-round effects and the indirect impact of supply side pressures (in production cost through energy and other inputs) as both are present in core inflation. 55. Similarly, there are risks of demand side pressures in view of the growth in monetary and credit aggregates. 56. Considering the above growth-inflation dynamics, I consider it appropriate to recalibrate the policy rate. Accordingly, I vote for a 25-bps hike in the policy rate. 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, the broadening of price pressures, second round effects of the 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. (Brij Raj)
Chief General Manager Press Release: 2026-2027/1361
|