Madhavi Arora, Chief Economist at Emkay Global, said the RBI's 25-basis-point rate hike and cautious tone, along with the change to the new “calibrated tightening” nomenclature, felt more like forward guidance than a policy stance per se, but prepared markets for a higher-for-longer interest rate environment.

With US rates and growth higher and inflation proving stickier, India may need to offer a meaningfully higher risk premium, particularly amid elevated global volatility, high oil prices and lacklustre natural dollar inflows. Global financial conditions could increasingly dictate the RBI's reaction function alongside domestic growth and inflation dynamics.

From a signalling perspective, both the policy rate and liquidity stance are likely to tighten incrementally. However, system liquidity is expected to remain above 1% of NDTL by end-March 2027 even with RBI liquidity absorption in the coming months. Emkay Global maintains its call for cumulative rate hikes of 75 basis points in the current cycle, while remaining watchful of evolving global dynamics.