MPC Minutes: Growth Forecast Raised to 7.1%, but Inflation Is Spreading Across More Items
The Reserve Bank of India (RBI) released the minutes (the official record) of the Monetary Policy Committee (MPC) meeting held on 5–7 October 2026.
In that meeting, all six MPC members voted to raise the repo rate (the rate at which the RBI lends to banks) by 25 basis points (0.25 percentage points) to 5.5%. This was the first rate hike in nearly four years.
The RBI raised its growth forecast for 2026-27 to 7.1%, from 6.7% projected in August 2026.
The RBI Governor warned that inflation (the general rise in prices) is building up and spreading. In August 2026, 37% of the items in the Consumer Price Index (CPI) basket had inflation above 4%, compared with only 20% in March 2026.
The MPC changed its stance from "neutral" to "calibrated tightening", and projected CPI inflation for 2026-27 at 5.2%.
CPI Inflation Diffusion Index
A diffusion index tells us how widely price rises are spread across the items in a price basket, not how big they are. The headline inflation number is like a class average: it can hide whether a few students scored very high or the whole class did well. A diffusion index counts how many items are becoming costlier. The Reserve Bank of India (RBI) uses CPI diffusion indices to check whether inflation is limited to a few items, such as tomatoes or onions, or is spreading to almost everything households buy.
The MPC minutes show that the share of CPI items with inflation above 4% rose from 20% in March 2026 to 37% in August 2026. This is exactly the "spreading" that diffusion measures are designed to catch. It is a key reason why the RBI Governor called the trend a red flag and why the MPC raised the repo rate.
Monetary Policy Committee (MPC): How RBI Sets the Repo Rate
The Monetary Policy Committee (MPC) is a six-member body that decides India's main policy interest rate, the repo rate. By raising or cutting this rate, it makes loans across the country costlier or cheaper over time. Its main legal job is to keep CPI inflation close to the 4% target while keeping growth in mind. It was given legal status by amending the RBI Act, 1934 through the Finance Act, 2016.
The minutes released on 21 October 2026 explain why all six members voted for the hike. Growth looked strong at a projected 7.1%, while inflation was rising and spreading. This gave the MPC room to tighten without a big hit to growth.
Consumer Price Index (CPI): How India Measures Retail Inflation
The Consumer Price Index (CPI) is a number that tracks how the prices of goods and services bought by ordinary households change over time. The yearly change in CPI is India's official measure of retail inflation. It is also the measure that the RBI must target under its inflation-targeting law.
The RBI's warning is based on item-level CPI data. Looking inside the CPI basket, rather than only at the headline number, showed that more and more items were crossing 4% inflation.
- MPC meeting: 5–7 October 2026; minutes released 21 October 2026
- Repo rate: raised 25 bps to 5.50% (unanimous); first hike in nearly four years
- SDF: 5.25%; MSF and Bank Rate: 5.75%
- Stance: changed from neutral to calibrated tightening
- GDP growth forecast 2026-27: 7.1% (up from 6.7% in August 2026)
- CPI inflation forecast 2026-27: 5.2%; Q3: 6.0%; Q4: 5.7%
- Share of CPI items with inflation above 4%: 20% (March 2026) → 37% (August 2026)
- CPI inflation: 4.8% in August 2026
- Inflation target: 4% (band 2%–6%), retained till 31 March 2031