Edited Transcript of the Reserve Bank of India’s Post-Monetary Policy Press Conference: October 7, 2026 (Wednesday) -

The RBI’s changed policy stance means rates are not expected to fall soon. Instead, the Monetary Policy Committee may either hold rates steady or raise them further. This matters because borrowing costs could remain high even as policymakers assess whether inflation is returning sustainably toward target.

Governor Sanjay Malhotra said the MPC had considered all possibilities, including a 50-basis-point hike. It ultimately made a decision based on the appropriate policy response. He added that even the latest 25-basis-point increase recalibrated the real rate. The depth of any future hike would depend on growth-inflation dynamics.

The RBI is targeting headline inflation of 4%, but it does not rely on that number alone. It is also examining underlying inflation, core inflation, diffusion indices, and supply-side effects. The Governor said the next three quarters’ average inflation was projected at 5.8%. Therefore, the next policy moves remain conditional rather than predetermined.

A real interest rate measures the purchasing-power cost of borrowing. In simple terms, it is the nominal interest rate minus the inflation rate. It matters because borrowers and savers respond not only to the rate printed on a loan or deposit, but also to how quickly prices are rising.

For example, if a lending rate is 7% and inflation is 5%, the approximate real rate is 2%. If the RBI raises the policy rate by 25 basis points while inflation stays unchanged, the real rate also rises by about 25 basis points. That can make borrowing less attractive and saving more rewarding. This calculation is simplified and does not capture every financial condition.

The Governor said the latest 25-basis-point hike had recalibrated the real rate. He did not say whether another increase was necessary. The MPC will judge that using headline inflation, underlying inflation, growth, and other evolving macroeconomic conditions.

The figures describe two different pressures facing monetary policy. The RBI’s headline inflation target is 4%, but the Governor said inflation was expected to average 5.8% over the next three quarters. Credit growth, meanwhile, was almost 19%, which the Governor described as among the highest rates in the available data.

The gap between 4% and 5.8% shows projected inflation remains above the target. The nearly 19% credit-growth figure shows banks are extending loans at a very strong pace. These numbers do not measure the same thing: one tracks price pressure, while the other tracks expansion in bank credit. Together, they influence the RBI’s policy assessment.

The RBI did not present these figures as a guaranteed forecast of future rates. It said the policy path could be a pause or a hike, depending on growth-inflation dynamics. It also stressed that headline inflation alone is insufficient, especially when base effects and supply-side factors affect the number.

Higher interest rates usually affect the economy through borrowing costs. Households may postpone homes, vehicles, or other purchases. Businesses may delay investment when loans become more expensive. This can reduce demand and eventually ease inflation, but it can also slow economic growth.

For borrowers, existing floating-rate loans may become costlier, while new loans may carry higher rates. Banks could earn more on some loans, but they may also face slower credit demand and greater repayment pressure from highly indebted customers. If credit growth is already nearly 19%, a further increase could moderate lending from that unusually strong pace rather than stop it immediately.

The source does not provide the RBI’s specific forecast for these consequences. It records the Governor’s view that rates may pause or rise, depending on conditions. The likely balance is between controlling inflation, projected at 5.8% on average, and avoiding an unnecessary slowdown in credit and economic activity.

Headline inflation captures the overall change in consumer prices and remains the RBI’s formal target measure. However, it can move sharply because of temporary factors, such as an unusually low or high comparison base, or supply disruptions affecting particular goods. Looking beyond it helps policymakers judge whether inflation is becoming broad and persistent.

Core inflation generally removes volatile components to reveal more stable price trends. A diffusion index shows how widely price increases are spread across goods and services. For example, a high headline reading driven by a few supply shocks may be less broad than a smaller increase affecting many categories. These measures provide different views of inflation momentum.

Governor Sanjay Malhotra specifically cited core inflation and diffusion indices. He said base effects and supply-side factors were contributing to higher headline inflation, so headline alone might not be the right measure. The RBI will use these indicators, alongside growth and other conditions, when deciding between a pause and another hike.

The source focuses on domestic inflation, credit growth, liquidity, and India’s policy rate. It does not explain how the US Federal Reserve affects India. In general, however, global interest-rate decisions matter because investors compare returns across countries and because exchange-rate movements can change the rupee cost of imports.

If US rates rise, some funds may shift toward US assets. That can put pressure on the rupee and make imported goods, energy, or raw materials more expensive. Higher global rates can also tighten financial conditions for Indian companies. Conversely, easier US policy may support global liquidity and reduce some external pressure, although the effect depends on other conditions.

The RBI would still weigh domestic conditions first, including its 4% inflation target, projected 5.8% average inflation, and strong credit growth. Global developments could alter the risks around growth, inflation, and the currency. Any response would therefore depend on how those external effects interact with India’s evolving macroeconomic picture.

Interest rates influence the cost of loans and the reward for saving. Higher rates can reduce household spending and business investment, easing demand-driven inflation. Lower rates can encourage borrowing and activity, supporting growth when inflation is subdued. The challenge is finding a setting that controls prices without weakening the economy excessively.

Liquidity refers to the amount of readily available money in the financial system. More liquidity can make it easier for banks to lend and for markets to function. Less liquidity can tighten financial conditions. In practice, a central bank uses policy rates and liquidity operations together, because the policy signal works best when short-term market rates broadly reflect it.

The source does not explain these mechanisms in detail. It records a question about core liquidity, described as still being ₹10 trillion, and the Governor’s response began with credit growth instead. The RBI’s immediate policy path was either a pause or a hike, guided by inflation and growth conditions.