PolicyMarket noteWednesday 7 October 2026, 08:05
RBI policy: repo rate raised to 5.50%, India's first rise since 2023
The RBI raised the repo rate by 25bp to 5.50% and moved to calibrated tightening, its first rise since February 2023, as it sees inflation near 6% this winter.
By The Notebook Desk
The Reserve Bank of India raised interest rates on Wednesday for the first time since February 2023. In its RBI policy decision, the Monetary Policy Committee voted unanimously to lift the repo rate by 25bp to 5.50%, the central bank said. The standing deposit facility rate rises to 5.25%, and the marginal standing facility rate and the Bank Rate to 5.75%.
The committee also changed its stance to “calibrated tightening”. The RBI spelled out what that means: rate cuts are off the table in the near term, and the next move can only be another rise or a pause.
The last rise came on 8 February 2023, when the committee took the repo rate to 6.50%, according to that meeting’s resolution. The RBI then cut rates, to 5.25% before this meeting. We wrote on 5 October that most economists expected Wednesday’s rise.
Why the RBI raised the repo rate
Inflation is the reason. Consumer prices rose 4.8% in the year to August, up from 4.5% in July. Food and fuel drove most of the rise, but core inflation also picked up, to 4.2%, which the committee read as a sign that price pressures are widening. The share of items in the consumer price index rising faster than 4% climbed to about 37% in August.
The RBI now expects inflation to average 5.2% in the 2026-27 fiscal year, and almost 5.8% over the next three quarters. It sees the peak in the October to December quarter, at 6.0%.
Oil is a large part of that outlook. The price of the Indian basket of crude oil rose from $82.0 a barrel in July to $90.2 in August and $116.1 in September, Governor Sanjay Malhotra’s statement shows, citing the Petroleum Planning and Analysis Cell. The committee also pointed to a weak south-west monsoon and strong El Niño conditions, which threaten food prices.
The decision also follows the world’s other central banks. The resolution notes that the US Federal Reserve raised rates by 25bp in September, and that tighter policy by major central banks has raised expectations of higher global rates. Global bond yields, it says, are at record highs.
The economy is strong enough to take it
Growth gives the RBI room to tighten. India’s economy grew 7.8% in the April to June quarter, faster than expected. The RBI forecasts 7.1% growth for the 2026-27 fiscal year, slowing from 7.2% in the July to September quarter to 6.8% in January to March.
The governor’s statement shows a strong external position too. Foreign exchange reserves stood at $734.6bn on 2 October, enough to cover about 11 months of imports. Net inflows into non-resident deposits rose to $119.2bn from April to August, from $5.6bn a year earlier, after measures to attract capital. The merchandise trade deficit widened to $58.7bn in July and August, from $55.1bn a year earlier, as imports of electronic goods and crude oil grew.
Not every member wanted a new stance
The rise itself was unanimous, but the stance was not. Two of the six members, Nagesh Kumar and Ram Singh, wanted to keep it neutral. The committee said the length and size of the tightening cycle will depend on underlying inflation, how far price pressures spread and the second-round effects of the supply shock.
Loan and deposit rates have moved in different directions. In July and August the average rate on new rupee loans rose by 8bp, while the average rate on new term deposits fell by 28bp, the governor’s statement shows. The RBI said it will manage liquidity so that the overnight call rate stays close to the repo rate.
What comes next for RBI policy
The minutes of this meeting are due on 21 October and will show how each member argued. The next policy decision comes after the meeting of 2 to 4 December. With inflation forecast to peak in the current quarter, the December decision will turn on whether prices follow the RBI’s path or run ahead of it.
Disclosure
This is analysis and opinion, not investment advice.