RBI MPC meeting October 2026: After announcing a 25bps rate hike, Reserve Bank of India (RBI) Governor Sanjay Malhotra said the rate cuts in the near-term are unlikely given the prevailing economic conditions.
He indicated that the central bank’s next policy action could therefore be either a rate hike or a pause, depending on how the economic outlook and conditions develop.
“The duration and extent of the rate hike cycle, therefore, would be contingent on the actual growth inflation development and outlook, especially that of underlying inflation, extent of broadening of price pressure, and speed round effects on the supply shock,” he said.
On Wednesday, RBI Monetary Policy Committee (MPC) unanimously increased the repo rate by 25 basis points to 5.5%, from 5.25%, as widely expected, marking the RBI’s first rate hike in four years, as the central bank responds to persistent price pressures.
The Indian stock market remained volatile on Wednesday. After opening in negative territory, Indian benchmark indices pared some of their losses on Wednesday, October 7. The Sensex recovered nearly 450 points, or 0.6%, from the day’s low to touch an intraday high of 72,969.57. The Nifty 50 also rebounded 123 points, or 0.5%, from its low to reach 22,701.60.
Earlier in the session, the Sensex had slipped as much as 547 points, or 0.7%, to an intraday low of 72,520.73. The Nifty 50 declined by up to 198 points, or 0.8%, to hit a low of 22,578.25.
Harshal Dasani, Business Head at INVasset PMS, said the Governor’s statement that the next policy action “can only be a rate hike or a pause” was the most important signal from the policy announcement.
He pointed to the RBI’s projection of 6% inflation in the December quarter and the expectation that inflation will not return to the 4% target within the forecast horizon. In his view, this effectively puts a floor under the current 5.50% policy rate for at least the next couple of quarters, while making a further hike more likely than a cut.
What does no rate cut means for Sensex, Nifty 50?
According to Seema Srivastava, Senior Research Analyst at SMC Global Securities, the RBI’s shift towards calibrated tightening and the 25 bps hike to 5.50% could result in valuation compression and consolidation in the Sensex and Nifty in the near term.
She further added that higher borrowing costs and the removal of expectations for easier liquidity could create pressure on rate-sensitive segments, including some banking stocks, NBFCs, automobiles and real estate. Higher interest rates can raise funding costs and potentially weigh on credit demand and margins.
However, Srivastava said the current tightening cycle is different from one driven purely by concerns over weak growth. The RBI’s upward revision of FY27 real GDP growth to 7.1% indicates that domestic economic activity remains resilient.
“Corporate earnings will not collapse,” she said, adding that strong underlying fundamentals could act as a structural cushion against a deeper market correction.
Meanwhile, Dasani said the Governor’s guidance effectively removes the “hope trade”—the expectation that a slowing economy could prompt rate cuts and trigger another expansion in market multiples. This means valuation support for the benchmark indices will increasingly have to come from earnings.
He noted that the Sensex closed policy day down 0.58% at 72,644.63, with the BSE 500 showing significantly weak breadth, indicating that the market was already absorbing the change in the rate outlook.
What should investors watch now?
The historical precedent from 2022 offers some comfort to equity investors. Dasani pointed out that the Nifty bottomed roughly six weeks after the RBI’s first rate hike that year and subsequently reached a record high in December, even as the central bank was still raising rates.
The key variable, therefore, could be corporate earnings rather than the rate cycle alone. With the market already down around 14% this year and valuation multiples having compressed, the upcoming earnings season could provide the next major signal for investors.
“The guidance argues for the earnings-visible half of the market, repo-linked lenders, domestic cash generators and exporters with a weak rupee behind them, over the long-duration half whose multiples needed the cut that is no longer coming. The constructive view holds on the growth upgrade to 7.1 percent; the entry discipline tightens because the central bank has just told you the discount rate will not do the work,” Dasani said.
Srivastava believes strong balance sheets and lower leverage could become increasingly important in a higher-for-longer rate environment. Investors may therefore favour companies that can maintain earnings growth without depending heavily on external borrowing, she added.
“Ultimately, while multiple expansions may pause as the market adjusts to a higher-for-longer interest rate environment, India’s solid macroeconomic foundation ensures that long-term equity compounding remains intact for quality businesses,” said Srivastava.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
