Policymakers at the Reserve Bank of India (RBI) see room for further interest rate increases to contain inflation but are wary of tightening so hard that growth suffers, Reuters reported on October 21, citing minutes of their latest meeting.

Price pressures have built in India as the war in the Middle East drove up oil costs and a weak monsoon pushed food prices higher. Traders now expect slightly more than 100 basis points of rate rises over the coming year.

The Monetary Policy Committee (MPC) voted unanimously earlier this month to lift the repo rate by 25 basis points to 5.50%, its first increase in almost four years. It also changed its position from neutral to "calibrated tightening". RBI Governor Sanjay Malhotra said the change meant rate cuts were no longer an option.

In the minutes, Malhotra told colleagues that inflation was showing growing signs of spreading across the economy. Retail inflation rose faster than expected to 5.54% in September, close to the RBI's upper tolerance limit of 6%. The bank projects that inflation will average 6% in the October-December quarter.

Deputy Governor Poonam Gupta said policymakers might not want to hold out for firmer proof that inflation was broadening, since monetary policy takes time to feed through. She added that another rise in the policy rate could be required to keep inflation and inflation expectations in check.

At its review this month, the RBI lifted its inflation forecast for the current financial year to 5.2% from 5% and raised its growth projection by 40 basis points to 7.1%.

MPC member Saugata Bhattacharya said the available data made a strong economic case for tightening, though he warned that moving rates too quickly could choke growth.

Two members, Nagesh Kumar and Ram Singh, opposed the change in stance. Singh said it could be read as pointing to a prolonged hiking cycle, which he did not think was justified at present. He argued for small, gradual increases rather than keeping rates elevated for an extended period, noting that expectations of aggressive tightening could weaken demand well beyond rate-sensitive sectors.

Economists are also divided. Barclays forecasts two more hikes in the current cycle, Goldman Sachs expects at least three between December and June 2027, and HSBC sees a 50 basis point increase in December alone.

RBI Executive Director Indranil Bhattacharyya said in the minutes that it was better to put aside what he described as a cautiousness bias and act pre-emptively instead of waiting to see how events unfolded.