Reserve Bank of India (RBI) MPC Raises Repo Rate by 25 Bps to 5.50%, Shifts Stance to Calibrated Tightening

Key facts

• The Reserve Bank of India's (RBI) six-member Monetary Policy Committee (MPC) unanimously raised the repo rate by 25 basis points to 5.50% on October 7, 2026, the first rate hike since February 2023.
• The MPC changed its policy stance from neutral to calibrated tightening, though two members, Nagesh Kumar and Ram Singh, favoured retaining the neutral stance.
• RBI Governor Sanjay Malhotra said rate cuts are off the table in the near term, with future policy action limited to a hike or a pause depending on evolving conditions.
• Following the hike, the standing deposit facility (SDF) rate stands at 5.25% and the marginal standing facility (MSF) rate and Bank Rate at 5.75%.
• The RBI raised its FY27 real GDP growth forecast to 7.1% from 6.7%, projecting 7.2% for Q2, 6.9% for Q3, 6.8% for Q4 of FY27 and 7.1% for Q1 FY28.
• The RBI raised its FY27 CPI inflation forecast to 5.2% from 5.0%, projecting inflation at 4.9% in Q2, 6% in Q3, 5.7% in Q4 of FY27 and 5.6% in Q1 FY28, with core inflation projected at 4.4%.
• CPI inflation rose to 4.8% in August 2026 from 4.5% in July, driven mainly by food and fuel prices, while core inflation increased to 4.2%.
• The rate hike was driven by crude oil prices rising above $100 a barrel amid the West Asia conflict, a deficient southwest monsoon and El Niño conditions, and a narrowing interest-rate differential with the US.
• The hike ends the 125 basis point easing cycle that began in February 2025 and concluded in December 2025, when the repo rate was lowered to 5.25%.
• The RBI had attracted about $133 billion through its June foreign-currency deposit push to support the rupee, creating excess liquidity, and has already drained more than ₹1 lakh crore ($10.4 billion) through bond sales and other measures.
• The RBI's move aligns with global tightening, as the US Federal Reserve raised rates by 25 basis points in September to 3.75%-4%, the European Central Bank raised its three key rates by 25 basis points, and the Bank of Japan raised its policy rate to a 31-year high.
• The benchmark 10-year bond yield rose as much as seven basis points to 7.27% after the decision, while the rupee was largely steady at 96.40 to a dollar.
• In an ET poll of 21 economists and bank executives, 20 had expected the RBI to raise rates by 25 basis points to 5.50%.
• Economists expect another 50 basis points of rate hikes in FY27, with the trajectory dependent on the West Asia conflict, inflation pass-through, El Niño impact and domestic demand resilience.