PolicyMarket noteMonday 5 October 2026, 05:55
RBI policy: India's first repo rate rise since 2023 is expected
Most economists expect Wednesday's RBI policy decision to lift the repo rate to 5.50%. Inflation hit 4.82% in August, and the RBI sees it peaking near 6%.
By The Notebook Desk
The Reserve Bank of India’s Monetary Policy Committee began a three-day meeting on Monday, and its RBI policy decision is due on Wednesday, 7 October, according to the RBI’s schedule. The question is whether the six members raise the repo rate from 5.25%. A rise would be the first since February 2023. Eight of the 10 economists polled by Business Standard expect an increase of 25 basis points, to 5.50%. A Reuters poll cited by the paper found nearly 60% of economists expecting the same.
The case for a rise is inflation. Consumer prices rose 4.82% in the year to August, up from 4.45% in July, the statistics ministry reported. That is the third month in a row above the RBI’s 4% target. Food prices rose 5.95%, and prices in villages rose faster than in cities: 5.23% against 4.31%.
What the RBI said in August
In August the committee voted unanimously to hold the repo rate at 5.25% and keep its neutral stance. Governor Sanjay Malhotra said that the rise in inflation was “mostly on account of fuel and food”, with little sign that it was spreading. His statement said the committee wanted “greater clarity” on inflation before acting. But it also left the door open. Any action, he said, would have to consider “the need for recalibration of policy rates”.
The RBI’s own forecasts point towards a rise. It projected inflation of 5.0% for the financial year to March 2027, with a peak of 5.9% in October to December and 5.5% in January to March. If prices follow that path, a repo rate of 5.25% would sit below inflation this winter. The real policy rate, the repo rate minus inflation, would turn negative.
Why the case has grown since August
Three things have changed since the August meeting.
The first is oil. Brent crude cost $86.65 a barrel on the day of the August decision and $113.96 on 29 September, the latest price in the US Energy Information Administration’s daily series. That is a rise of 31.5%. Oil already weighed on India before the meeting. Its merchandise trade deficit widened to $86.6bn in April to June, from $68.7bn a year earlier, mainly on imports of crude oil, electronic goods and gold, the governor said in August.
The second is other central banks. The Fed raised its target range to 3.75–4% on 16 September, its statement said. Two days later the Bank of Japan raised its policy rate to 1.25%. A narrower gap between Indian and US rates can push money out of India and weigh on the rupee. The rupee has fallen about 6% against the dollar this year, Business Standard reported, citing Reuters.
The third is wider price pressure. Wholesale inflation rose to 9.92% in August, from 9.78% in July, according to the same Business Standard report. It added that the minutes of the August meeting showed some members were open to higher rates if price pressures spread.
What could hold the RBI back
The governor’s August statement also gives the case for waiting. Core inflation, which leaves out food and fuel, was 3.9% in May and June. Without precious metals it was lower still, at 2.3% to 2.5%. Gold and silver are a large part of the story. In August, silver jewellery prices were up 107.11% on a year earlier and gold, diamond and platinum jewellery 35.53%, the statistics ministry’s release shows. Those rises reflect world metal prices, which a higher repo rate does little to change.
Food could also ease. The RBI said rice stocks stood at 4.8 times the government’s buffer norm in mid-July, and wheat at 1.9 times. Tomato prices were 31.09% lower in August than a year earlier. On the other side, the monsoon was 11.9% below normal in early August, and onion prices were up 48.27%.
Growth gives the RBI room to raise rates if it wants to. It projected real GDP growth of 6.7% for the financial year, and said the economy did better than expected in April to June.
What to watch on RBI policy day
- 7 October: the decision, the vote and the stance. A move from “neutral” to a tighter stance would signal more increases to come.
- The new forecasts: whether the RBI still expects inflation to peak at 5.9% in October to December.
- 12 October: September consumer prices, from the statistics ministry.
- 2 to 4 December: the committee’s next meeting.
Disclosure
This is analysis and opinion, not investment advice.