The Repo Rate Hike: Inflation Gave the Cover, the Rupee Gave the Reason

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SumanSpeaks Independent Capital Markets & Geopolitical Intelligence RBI Policy Decoded The Repo Rate Hike: Inflation Gave the Cover, the Rupee Gave the Reason The RBI raised the repo rate by 25 basis points to 5.50 percent on 7 October 2026. With the rupee at ₹96.78 to the dollar, the Fed at 3.75–4.00 percent and bank credit growing near 18 percent, the fuller story is bigger than August CPI of 4.8 percent. The Reserve Bank of India raised the repo rate by 25 basis points to 5.50 percent on 7 October 2026. It is the first hike since February 2023, and the stance has moved from neutral to calibrated tightening. The rate decision was unanimous. The Governor cited inflation. The Monetary Policy Committee said the inflation outlook is no longer as comfortable as it was last year, and near-term rate cuts were taken off the table. That is the official story, and it is not wrong. But it is incomplete. Look at what surrounds the decision: a rupee near its record...
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Brokerage Report: Banking Sector Update:
Credit growth at yearly low: RBI released its fortnightly bulletin for 16 December 2011, with updates on bank credit and deposit growth. Credit growth fell to 17.1%, below the RBI’s trend growth expectation of 18%, while deposit growth was largely flat at 18%.
Credit growth: Credit growth fell to 17.1% yoy vs. 17.7% yoy (all comparisons with the previous fortnight, unless specified). YTD FY12 credit growth stood at 8.3% vs. 12.3% in the same period of FY11. Given the high base of last year and slowdown in industrial activity, we can expect credit growth numbers to slip further.
Deposit growth: Deposit growth was at 18% yoy an increase of 10bps. Time-deposit growth was strong at 20.9% but demand deposit growth was poor at -3.2% yoy.
Incremental CD ratio was at 71.8%: Absolute CD ratio came in at 75.2% vs. 74.2%. Bank credit was Rs.42,670bn, up Rs.316bn, while deposits were at Rs.56,726bn, down Rs.375bn. 
On a yoy basis, credit off-take was lower than deposit accretion (Rs.6.2tr vs. Rs.8.7tr respectively) resulting in lower incremental CD ratio of 71.8% vs. 73.7%. 
Liquidity tight, RBI conducts regular OMOs: Average LAF (Liquidity Adjustment Facility) for two weeks (15 December-28 December) stood at -Rs.1,477bn vs. -Rs.833bn and is beyond the RBI set ±1% NDTL (Net Demand and Time Liabilities) comfort zone. While liquidity has generally remained stable although in deficit mode, the deficit has spiked in recent weeks owing to seasonal impact of advance tax payment.
To maintain liquidity in the system, RBI has announced another tranche of OMO (Open Market Operations) of Rs.120bn on 29 December 2011. On 22 December, RBI purchased around Rs.88bn of government securities under OMO.
Although it has not announced any calendar for OMO in its mid-quarter policy meet, the RBI is pumping money into the system whenever necessary to ensure primary issuances go through successfully without devolving on primary dealers — this also ensures benchmark yield stays within a manageable range. 

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