Central banks are rarely accused of moving too soon. Yet on October 7, the RBI raised the policy repo rate by 25 basis points to 5.50 per cent and adopted a stance of calibrated tightening. The release of the MPC meeting minutes on October 21 reveals that, while the rate decision was unanimous, two members preferred to maintain a neutral stance. By reversing course within two months and declaring that rate cuts are off the table, the RBI has chosen to stay ahead of the cycle rather than trail it.

The critics charge that RBI is fighting a supply shock that interest rates cannot cure. They are right about the cure but wrong about the counterfactual, since everything around the policy stance had already been repriced. Q1 FY27 delivered real GDP growth of 7.8 per cent on a nominal expansion of 10.3 per cent, with real GVA up 8.2 per cent. The expansion was broad-based: services grew 10 per cent, capital formation 11.9 per cent, manufacturing 9.2 per cent, and construction 7.7 per cent. The RBI accordingly lifted its FY27 growth forecast to 7.1 per cent. Credit tells a similar story with bank lending up 18.1 per cent against a deposit growth of 17.3 per cent. An economy this buoyant does not need cheap money, and the case for leniency weakens precisely when price pressures build. The immediate pressures are supply-driven.

The monsoon ended 12.6 per cent below normal, with a strong El Niño expected through year-end. The Indian crude basket rose 42 per cent between July and September, to $116.1 a barrel, and October’s average so far is $120.3. An RBI staff study puts pass-through at about 20........

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