RBI hikes repo rate by 25 bps to 5.50%

The Reserve Bank of India has raised the repo rate to 5.50% by 25 basis points from 5.25% on October 7, 2026. This is the first repo rate hike since February 2023. The Monetary Policy Committee also changed its stance from "neutral" to "calibrated tightening" as inflation risks increased.

The decision comes as India's economic growth remains firm, but higher crude oil prices, rising inflation, and global financial conditions have created fresh pressure.

The RBI raised the repo rate 5.50% from 5.25% to 5.50% by a unanimous 25 bps decision on October 7, 2026. The MPC also shifted its stance to "calibrated tightening". The RBI raised its FY27 GDP growth forecast to 7.1% but also increased its CPI inflation forecast to 5.2%. The Reserve Bank of India’s Monetary Policy Committee (MPC) held its 62nd meeting, the previous meeting, from August 3 to 5, 2026.

The repo rate is the rate at which the RBI lends short-term funds to banks. A change in this rate can influence borrowing costs across the financial system.

The October decision changed the main policy rates as follows:

The six-member MPC voted unanimously for the 25-bps repo rate increase. The SDF rate moved to 5.25%, while the MSF rate and Bank Rate moved to 5.75%.

The MPC also changed its stance from "neutral" to "calibrated tightening". In the RBI's framing, this signals that rate cuts are off the table for now, and the next decision will depend on how inflation and growth data evolve. While the rate hike was unanimous, two members preferred to retain the neutral stance. 

Inflation has become a bigger concern for the central bank.

CPI inflation was 4.82% in August, up from 4.45% in July. The reading stayed above the RBI's 4% medium-term target for the third month in a row. Food, fuel and crude oil prices are some of the factors the RBI is watching closely.

The MPC pointed to several pressures: rising food prices (with spikes in items like sugar and onion), higher energy and commodity prices, a deficient monsoon and El Niño conditions, elevated inflation expectations, and strong credit growth. It described the current inflation as largely supply-driven, but wants to stop it from becoming persistent through wages, expectations and corporate pricing. 

Global conditions have also become less comfortable. Higher international bond yields, oil prices and geopolitical uncertainty can affect India's inflation outlook and financial markets.

The RBI's policy stance now gives more weight to controlling these inflation risks. The central bank said the inflation outlook was no longer as benign as it had been earlier.

The RBI raised both its growth and inflation projections.

The 40-bps increase in the FY27 GDP forecast reflects stronger domestic economic activity. India's real GDP growth was 7.8% in Q1 FY27, according to the RBI's latest assessment.

At the same time, the RBI raised its FY27 CPI inflation forecast to 5.2%. It expects inflation to reach around 6% in Q3 before easing to 5.7% in Q4.

This combination matters. The RBI sees enough strength in economic activity to handle a higher policy rate, while inflation risks have increased.

A higher repo rate can increase borrowing costs for loans linked to an external benchmark.

For borrowers with repo-linked floating-rate loans, the effect depends on the lender's reset mechanism and the spread charged over the benchmark. The change does not mean every loan EMI will increase immediately or by the same amount.

Home loans, vehicle loans and other floating-rate borrowing can therefore see changes over time as lenders transmit the policy move. Fixed-rate loans are not affected in the same way.

Higher interest rates can also affect deposit rates.

Banks decide their deposit rates based on several factors, including their funding needs and market conditions. A repo rate hike can therefore create room for banks to review deposit rates, but the timing and size of any change can differ between banks.

Three data points will matter after the repo rate 5.50% decision:

• CPI inflation: A further rise could keep pressure on monetary policy.

• Crude oil prices: Higher oil prices can add to India's import costs and inflation.

• Economic growth: Strong domestic demand gives the RBI more room to focus on price stability.

The RBI has raised the repo rate 5.50% by 25 bps as inflation risks have increased. At the same time, the central bank has raised its FY27 GDP growth forecast to 7.1%, showing that it still expects economic activity to remain firm.

For households and businesses, the main point to watch is how banks transmit the higher policy rate to lending and deposit rates over the coming months.

This was the 63rd MPC meeting, chaired by Governor Sanjay Malhotra, and the minutes come out on October 21, 2026. The next meeting is December 2 to 4, 2026

Repo rate will stand at 5.50%, following an increase in the repo rate by 25 bps to raised from 5.25% to 5.50%. This was done unanimously by all six MPC members on October 7, 2026.

RBI hiked the interest rate as the probability of inflation rose, with August CPI inflation at 4.82% and crude oil prices putting further pressure. The central bank mentioned global financial markets as well.

Floating-rate loans linked to external benchmarks may see higher EMIs after the rate hike. How much the EMI changes will depend on the loan and when the lender resets the rate.

The RBI has raised its FY27 real GDP growth forecast to 7.1% from 6.7%. It cited stronger domestic economic activity and resilient growth conditions.

The RBI has raised its FY27 CPI inflation forecast to 5.2% from 5%. It expects inflation to remain elevated in the near term before easing later in the financial year.

Source

• RBI MPC resolution, Oct 5 to 7, 2026

• BusinessToday: Food inflation 5.95%, onion up 48%