New Delhi: The Reserve Bank of India (RBI) on Wednesday raised the repo rate by 25 basis points to 5.50 per cent.
The repo rate is the interest rate at which the RBI lends money to banks. When this rate rises, loans can become more expensive for people and businesses.
The RBI took the decision because inflation risks have increased. High global interest rates and strong growth in India also supported the case for a rate hike.
The decision was taken unanimously by the six-member Monetary Policy Committee (MPC). The repo rate was earlier at 5.25 per cent. The RBI had kept the rate unchanged at its previous policy meeting. At that time, it had maintained a neutral stance while waiting for more clarity on inflation and economic growth, as reported by The New Indian Express.
RBI Governor Sanjay Malhotra said the central bank had reviewed economic and financial conditions before raising the rate.
“After a detailed assessment of the evolving macroeconomic and financial conditions, developments and the outlook, the MPC voted unanimously to increase the policy repo rate by 25 basis points,” Malhotra said.
The RBI also changed its policy stance from neutral to calibrated tightening. This means the central bank is now more focused on controlling inflation.
Malhotra said the RBI was not considering a rate cut in the near term. He said the next policy move could either be another rate hike or a pause.
After the latest decision, the standing deposit facility rate is 5.25 per cent. The marginal standing facility rate and the Bank Rate are both 5.75 per cent.
Inflation was a major reason behind the RBI’s decision. Consumer price inflation stood at 4.82 per cent in August.
Economists expect inflation to rise above 5 per cent during the 2026-27 financial year. It could reach about 5.9 per cent in the third quarter.
Poor monsoon conditions could push up food prices. Higher crude oil prices could also increase transport and production costs.
Crude oil prices were around USD 100 a barrel. This could put further pressure on India’s inflation rate.
Global financial conditions have also become difficult. The US Federal Reserve raised its interest rate by 25 basis points in September.
US 10-year government bond yields have remained high at around 5.3 per cent. High US yields can put pressure on the currencies and markets of developing countries.
The rupee was trading at 96.36 against the US dollar when the report was filed.
The RBI also considered the amount of money available in the banking system. Its special foreign exchange swap facility had brought in USD 132.98 billion through FCNR(B) deposits by August 31.
This increased the amount of money available to banks. The RBI may therefore need to absorb some of the extra liquidity in a gradual manner.
Despite these concerns, India’s economy continues to grow strongly. The economy expanded 7.8 per cent in the first quarter of 2026-27.
Demand, manufacturing and services activity have also remained strong. These factors have given the RBI more room to focus on controlling inflation.
Economists had earlier expected the RBI to raise the repo rate by up to 75 basis points in total. The repo rate could reach around 6 per cent by the end of 2026-27.
However, future decisions will depend on inflation, crude oil prices, economic growth and global financial conditions.