The Reserve Bank of India’s latest policy review confirms what markets had begun to suspect since June: the easing cycle is over. This conclusion does not arise from any sudden deterioration in inflation dynamics, but from a shift in policy stance that now appears increasingly premature. By formally shifting its stance from accommodative to neutral two months ago, the RBI has boxed itself in, dulled the impact of earlier rate cuts, and left little room to respond if growth falters in the months ahead.The policy statement released today kept the repo rate unchanged at 5.50%, a widely anticipated outcome. What unsettled markets was the tone. The central bank’s narrative has shifted firmly toward vigilance on core inflation, with model-based projections pointing to headline CPI inflation rising toward 5% in the coming year. That caution emerges even as headline consumer price inflation has collapsed to 2.1%, its lowest level in six years, aided by food deflation and benign commodity prices.
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