RBI Raises Repo Rate to 5.5% in First Hike Since 2023, Says Cuts Are 'Off the Table'
With inflation above target for three months and crude above $100, the central bank moved to a stance of 'calibrated tightening'. Home loan EMIs are already rising.
The Reserve Bank of India has turned. On October 7, its Monetary Policy Committee raised the repo rate — the rate at which it lends to banks — by 25 basis points to 5.5 per cent, the first increase since February 2023. It also changed its policy stance from "neutral" to "calibrated tightening", and Governor Sanjay Malhotra made clear that rate cuts are off the table in the near term: the next move, he indicated, can only be a hike or a pause.
The rate decision was unanimous among the committee's six members. The change in stance passed 4–2, with two external members preferring to keep the neutral stance.
Why the RBI moved
The central bank is responding to inflation that has begun to spread. Consumer price inflation was 4.8 per cent in August, above the RBI's 4 per cent target for the third month running, and The Week reported that 37 per cent of the items in the consumer price basket were rising faster than 4 per cent — an early sign that price pressures are broadening.
Oil is a large part of the story. Renewed tensions between the US and Iran have pushed crude prices sharply higher, and India's crude import costs averaged $114–116 a barrel in September. At the same time, the economy has been growing strongly — real GDP expanded 7.8 per cent in the April–June quarter — giving the RBI room to tighten without choking a weak recovery.
The new numbers
- Repo rate: 5.5 per cent, up from 5.25 per cent.
- Standing deposit facility rate: 5.25 per cent.
- Marginal standing facility rate and Bank Rate: 5.75 per cent.
- Inflation forecast for 2026–27: raised to 5.2 per cent from 5 per cent; core inflation seen at 4.4 per cent.
- GDP growth forecast for 2026–27: 7.1 per cent.
What it means for borrowers
The impact on household loans is immediate for many. More than 68 per cent of floating-rate rupee loans from scheduled commercial banks — and over 90 per cent of private banks' floating-rate loans — are linked to external benchmarks such as the repo rate. Banks moved within a day: state-owned lenders raised their repo-linked lending rates by 25 basis points, with Bank of Baroda's repo-based lending rate going to 8.15 per cent, Business Standard reported.
For a borrower with a floating-rate home loan, that means either a higher EMI or a longer loan tenure. Fixed-rate loans will adjust only when their fixed period ends. Savers, on the other hand, can expect fixed deposit rates to edge up.
Markets and what comes next
Shares fell after the announcement, led by banks, carmakers and real estate companies, and the selling deepened the following day as oil and US bond yields climbed further. Economists are divided on whether this is the peak of the cycle. The MPC next meets in December, and its decision will depend on how crude prices, the rupee and food inflation evolve over the next two months.
Sources
This article draws on the following reporting. Dates are when each source was originally published.
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