New Delhi: High inflation, high crude prices and a historically low rupee have forced the Reserve Bank of India’s (RBI) hand to take defensive measures against imported energy shocks, flight of capital and high household expenses. On Wednesday (October 7), the central banker hiked the repo rate – the interest rate at which borrowers can secure short-term credit from RBI – for the first time since 2023.“In the light of available data, it is clear that inflation and its outlook are not benign as they were last year,” RBI said, pointing to retail inflation expected at almost 5.8% until the middle of 2027, and core inflation projected at 4.4% by April 2027. “In this milieu, recalibrating the policy rate is imperative,” a press note after the hike said.The 25 basis points (bps) hike in the repo rate meets analyst expectations reported in the run-up to the hike, while leaving room for futher upticks. RBI said that given the current conditions, rate cuts were “off the table” and policy action in the near term could “only be a rate hike or a pause”.RBI has accordingly altered its outlook to “calibrated tightening”, changing its stance from a neutral stance adopted since October 2023.The next review of by the Monetary Policy Committee (MPC), which takes a call on these issues, will be in the first week of December.RBI has particularly cited rising onion and sugar prices as it noted consumer inflation rising to 4.8% in August 2026 from 4.5% in July. “While the increase has been predominantly on account of higher inflation in food and fuel groups, core inflation has also picked up indicating some signs of widening price pressures,” it said.Retail consumers can expect fixed deposit rates to increase, while home loans could get costlier after the repo rate hike. Exporters’ costs may rise. The measures are, at the same time, expected to protect the economy from ‘second round’ effects of inflation, which are notoriously difficult to measure.The immediate global trigger comes from bond yields in the United States narrowing the gap against yields (interest rates) in emerging markets including India, with the outcome that Foreign Portfolio Investors (FPI) have been exiting their India holdings.Also read: Foreign Portfolio Investors Sell 60% of IPO Holdings Within a Year: ReportDollar-denominated holdings have become more attractive as Treasury yields in the United States recently spiked to 5% after benchmark interest rate hikes in September.“With a resolution of the West Asia conflict remaining elusive, significant downside risks to the global outlook remain, including further tightening of global financial conditions, continuing elevated AI-related asset valuations and high public debt,” RBI also noted.India’s 80%-plus energy import dependence has become a costly affair as the West Asia crisis and the Ukraine-Russia conflict limit India’s ability to manage fuel reserves, prices or supplies as before. RBI the adverse impact of the conflict on energy supplies and prices is being “contained” with source diversification, uncertain times will persist untilo the conflicts ease.RBI also said that, looking ahead, global economic uncertainty will “continue to have some bearing” on domestic economic activity. It notes that trends for Q2 indicated that economic activity remained “resilient” in terms of both domestic demand and investment, while inflation pressures would continue on the supply side (that is, in terms of the impact of higher costs of fuel and other inputs).So far, it said, there are “only limited signs of supply side pressures” getting embedded in pricing behaviour.Inflation for Q1, 2027-28 is projected at 5.6% and core inflation is projected at 4.4% for 2026-27. Meanwhile, the growth rate for