India’s rate hike a loud warning shot for Modinomics — SkimNews
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- RBI raised its benchmark repo rate by 25 basis points to 5.50%, its first hike since February 2023, pivoting its Monetary Policy Committee stance from "neutral" to "calibrated tightening" and signaling no rate cuts ahead.
- Sanjay Malhotra, who has been cutting rates since taking office in December 2024, reversed course as inflation accelerated toward 6% and the rupee hit record lows, leaving the RBI little choice on borrowing costs.
- Oil prices surging back above $100 a barrel drove a record weekly decline in India's foreign exchange reserves as officials intervened to prop up the rupee, which was named Asia's worst-performing currency in 2025.
- IDFC First Bank economist Gaura Sen Gupta argued for another 50 basis points of hikes by February to keep the real policy rate from turning negative; Oxford Economics' Alexandra Hermann Prasad countered that core inflation isn't problematic enough to bar further cuts.
- Make in India, Modi's program launched in 2014 to lift manufacturing's share of GDP to 25%, has fallen short after 12 years, with the sector still driving only about 17% of the economy even as oil and fertilizer costs climb.
- India's manufacturing PMI dropped to its lowest level in nearly four-and-a-half years due to Iran-related gas shortages, though it stayed above 50 at 55.1 in September and firms built finished-goods inventories to a near-12-year high.
Why it matters: Modi's "Goldilocks" narrative now collides with an RBI forced into the opposite of Governor Malhotra's December 2024 stance: rate hikes to fight inflation near 5%. With manufacturing stuck at 17% of GDP, the rupee as Asia's worst currency in 2025, and Iran-war oil pressing reserves, Modinomics faces its sharpest test since 2014 and a narrowing window to push long-promised structural reforms.
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