RBI Changes Policy Stance to ‘Calibrated Tightening’

Mumbai: The Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 5.50% and changed its monetary policy stance from “neutral” to “calibrated tightening”, signalling a stronger emphasis on containing inflation.

RBI Governor Sanjay Malhotra announced the decision, which marks a significant shift in the central bank’s approach. While the 25-basis-point increase is modest, the change in stance indicates that the RBI is prepared to gradually tighten monetary policy further if inflationary pressures persist.

A neutral stance allowed the RBI to move in either direction, depending on how economic conditions evolved. The shift to calibrated tightening, however, signals that controlling inflation has become a more prominent priority and leaves the door open for further rate increases if necessary.

The change also alters the outlook for borrowing costs. Until recently, market expectations had centred on the possibility of further rate cuts and cheaper borrowing. The focus is now shifting towards whether interest rates have reached their low point and whether additional increases could be required to bring inflation under control.

The RBI’s new stance could affect borrowing costs, bank deposit rates, bond yields, bank profitability and the valuations of stocks that are sensitive to changes in interest rates.

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