The Reserve Bank of India’s Monetary Policy Committee (MPC), chaired by Governor Sanjay Malhotra, on Wednesday raised the benchmark repo rate by 25 basis points to 5.50%, marking the first rate hike since February 2023 as the central bank responds to renewed inflationary pressures and a more challenging global environment.
The decision came at the conclusion of the MPC’s three-day meeting, held from October 5 to October 7, with the committee weighing rising consumer inflation, crude oil prices above $100 a barrel, rupee weakness and global financial market volatility.
The 25-basis-point increase takes the repo rate from 5.25% to 5.50%. The committee also changed its stance from ‘Neutral’ to ‘Calibrated Tightening’.
Following the decision, the Standing Deposit Facility (SDF) rate remains at 5.25 per cent, while the Marginal Standing Facility (MSF) rate and the Bank Rate continue at 5.75 per cent.
Why Did RBI Hike Repo Rate?
The October policy comes at a time when inflation has begun moving higher.
India’s retail inflation rose to 4.82% in August from 4.45% in July, bringing price pressures back into sharper focus for policymakers. Higher crude oil prices have added to the risks, particularly as oil has moved above $100 a barrel.
The rupee’s weakness also creates an additional concern as a softer currency can increase the domestic cost of imported commodities and add to inflation.
Weather risks have further complicated the outlook. A strong El Niño and the possibility of below-normal rainfall in October could affect Rabi crop production and put pressure on food prices in the months ahead.
Against this backdrop, economists had increasingly expected the RBI to bring forward a rate increase that had earlier been seen as more likely in December.
‘Indian Economy Has Been Strong’: Sanjay Malhotra
Explaining the policy decision, Governor Sanjay Malhotra said the global environment remained difficult because of geopolitical developments, but India’s domestic economy continued to show broad-based momentum.
“The MPC noted that the global context, on account of geopolitical developments, remains challenging. Nonetheless, the Indian economy has been strong, and the economic momentum remains broad based,” Malhotra said. He added that the economy is expected to remain resilient, but the inflation picture has changed from the previous year.
According to the governor, the MPC’s assessment of available data showed that inflation was no longer as benign as it had been last year. He said headline CPI inflation is expected to average almost 5.8% over the next three quarters, while core inflation is projected at 4.94% for the current financial year.
The inflation outlook therefore assumes greater importance for the RBI as it weighs the impact of higher energy costs, currency movements and food-price risks on the domestic economy.
RBI MPC October 2026: Growth Outlook Also In Focus
The rate hike comes despite a strong domestic growth backdrop.
India’s GDP expanded 7.8% in the first quarter of FY27, indicating that economic activity continues to have momentum even as the external environment remains uncertain.
Bank of America had expected a 25-basis-point increase in October, arguing that the RBI could begin withdrawing some of the monetary support provided over the past two years.
SBI Research had also favoured a hike, saying the balance of risks had shifted towards a pre-emptive move amid broader inflationary pressures, global macroeconomic uncertainty, liquidity conditions and repricing across global financial markets.
The RBI’s latest growth assessment will now be closely watched to see whether the central bank continues to expect the economy to withstand tighter financial conditions.
What Repo Rate Hike Means For Home Loans, Borrowers
The rate increase could have implications for borrowers, particularly those with floating-rate loans linked to external benchmarks.
A higher policy rate can eventually translate into increased borrowing costs, although the timing and extent of any impact will depend on the type of loan and the lender’s reset mechanism.
For the real estate sector, the impact could be manageable if the increase remains limited to 25 basis points. However, a prolonged period of higher interest rates could weigh on affordability and make some rate-sensitive buyers more cautious.
The repo rate decision is only one part of the October policy announcement. The RBI’s assessment of inflation, liquidity, growth and global risks will offer clues about whether this is a one-off increase or the beginning of a broader tightening cycle.
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: abplive.com
