India Economics: RBI Policy Review: Rate Hikes in the Offing

Research evidence excerpt

M

Idea

August 5, 2026 12:22 PM GMT

India Economics | Asia Pacific

Morgan Stanley India Company Private Limited

Upasana Chachra

Chief India Economist

RBI Policy Review: Rate Hikes in

the Offing

Bani Gambhir

Economist

Shreya Singh

Economist

the policy rate at 5.25% for the fourth consecutive meeting, in line with our

7.0%

expectations and consensus. It retained the neutral stance to remain data-

6.5%

dependent and respond to evolving domestic growth and inflation dynamics.

6.0%

Repo

SDF

Aug-26

Apr-26

Jun-26

Feb-26

Oct-25

Dec-25

Aug-25

Apr-25

Jun-25

Feb-25

Oct-24

Dec-24

Aug-24

Apr-24

4.5%

Jun-24

(MSe 6.7%), reflecting stronger-than-anticipated trends in high-frequency indicators.

Aug-23

5.0%

previously (MSe 5.0%), while lowering its core CPI forecast to 4.3% YoY (from

MSF

5.5%

marginally raised its FY27 GDP growth forecast to 6.7% YoY from 6.6% previously

On inflation, it expects headline CPI to average 5.0% YoY in FY27 versus 5.1%

WACR(7-day avg)

Feb-24

The RBI marginally revised its FY27 GDP and CPI projections: On growth, the RBI

Exhibit 1 : Trend in Policy Rates

Oct-23

The MPC maintained the policy rate at 5.25%: In a unanimous vote, the MPC held

Dec-23

The RBI retained the policy rate at 5.25% and maintained a

neutral stance. We bring forward our expected rate hike cycle to

Dec-26 (from Apr-27 previously), reflecting firmer inflation and

growth trends. We expect the RBI to deliver a cumulative 75bp

rate hike cycle and peg the terminal rate at 6%.

Source: RBI, Morgan Stanley Research

4.7%), suggesting generalized price pressures should remain modest.

Policy guidance – data-dependent; watchful of risks: The Governor reinforced the

RBI's resolve to remain vigilant and align inflation with target over the medium term.

In this context, the MPC highlighted: "There is a need for greater clarity to emerge,

especially regarding inflation, its path and composition before taking any policy

action. Any such action would also have to consider the need for recalibration of

policy rates in line with the evolving growth-inflation dynamics, especially the

normalisation of the underlying inflation from its benign levels seen hitherto."

…