The RBI’s October hike was the right call, and the data since then has only strengthened the case for another. Retail inflation rose to 5.54% in September, well above the 4.9% the RBI had forecast for the quarter. Food inflation is 7.74%, and households expect inflation of nearly 10% three months out. Expectations like that feed into wages and prices if they are left alone.
A 25 basis point hike on December 4 would take the repo rate to 5.75%. With inflation near 6%, that still leaves real rates close to zero. It is not a harsh policy.
What the RBI owes everyone else
The bigger risk is uncertainty. The committee has said cuts are off the table and that hikes or a pause are the only options. That tells markets what will not happen, not how far rates will go. Ram Singh, one of the external members, argued for small, gradual increases rather than keeping rates high for long. The committee should adopt that as its explicit approach and say what it would take to stop: inflation expectations coming down and food prices easing.
The case against
Those who want a pause have a point. Much of today’s inflation comes from onions, vegetables and oil, which interest rates do little to fix. Higher rates hit home buyers, vehicle sales and investment, and growth is forecast to slow in the second half. But a central bank that waits for supply shocks to pass risks letting them become general inflation. One more small step, with a clear signal of where the stopping point is, is the better balance.