Mumbai: Minutes of the Reserve Bank of India's October meeting show policymakers agreed inflation had worsened enough to warrant higher interest rates but differed on how much more tightening may be needed, signalling that rate cuts are off the table for now.
RBI Governor Sanjay Malhotra sought to keep the path ahead data-dependent after the six-member Monetary Policy Committee raised rates earlier this month, according to the minutes released on Wednesday.
"The extent and duration of the tightening cycle would depend on how growth and inflation evolve," Malhotra said, proposing a change of stance to "calibrated tightening" from neutral. That signals "that rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause", the minutes recorded.
Bond markets reacted sharply. The yield on the 10-year benchmark bond rose to 7.44%, a three-and-a-half-year high, versus its previous close of 7.39%, CCIL data showed. Yields rise as prices fall.
Separately, the RBI rejected all bids at a treasury bill auction on Wednesday, when the government had planned to raise Rs 23,000 crore through the sale of 91-day, 182-day and 364-day bills. Traders said the cutoff yields likely came in above the central bank's comfort level.
"High oil prices, global yield pressure, FII selling and global fundamentals, nothing is working in our favour right now," said Anshul Chandak, head of treasury at RBL Bank. Analysts said the market is signalling a possible 50 basis point hike in December.
Official data showed core sector output grew 7.9% in September, a series high, even as the crude oil import bill rose 47% to $15.4 billion that month.