Mumbai | October 7, 2026
The Reserve Bank of India (RBI) has raised the policy repo rate by 25 basis points to 5.50%, marking its first rate increase since February 2023.
The decision was taken unanimously by the six-member Monetary Policy Committee (MPC) as the central bank responds to rising inflation, higher crude oil prices and broader global economic uncertainty.
RBI Shifts Policy Stance
Along with the rate hike, the RBI changed its monetary policy stance from “neutral” to “calibrated tightening.”
Governor Sanjay Malhotra indicated that near-term rate cuts are no longer being considered. Future decisions will depend on how inflation and economic conditions evolve.
The Standing Deposit Facility (SDF) rate has been adjusted to 5.25%, while the Marginal Standing Facility (MSF) and Bank Rate stand at 5.75%. The Cash Reserve Ratio remains unchanged at 3%.
Inflation Pressures Drive Decision
Inflation has emerged as a major concern for policymakers. Consumer inflation rose to 4.82% in August, remaining above the RBI’s 4% medium-term target for the third consecutive month.
The central bank has also raised its FY27 inflation projection to 5.2%, from its earlier estimate of 5%. Higher crude oil prices and continuing geopolitical tensions have added to inflation risks.
RBI Raises Growth Forecast
Despite the tighter monetary policy, the RBI has raised its FY27 real GDP growth forecast to 7.1%, up from the earlier projection of 6.7%.
The April-June quarter recorded 7.8% growth, stronger than the RBI’s earlier estimate. The central bank said domestic economic activity remains resilient, supported by consumption and broad-based economic momentum.
Impact on Borrowers and Markets
The repo-rate increase could gradually push up borrowing costs for banks and customers, potentially affecting home loans, vehicle loans and other floating-rate credit. Deposit rates could also come under upward pressure.
Financial markets reacted to the decision, with the 10-year government bond yield rising after the announcement, while equity markets recorded modest declines.
The October decision marks a significant change in the RBI’s policy direction after a period of rate cuts and subsequent pauses. The future path of interest rates will depend largely on inflation, crude oil prices and the broader economic outlook.
