Economists Predict RBI Repo Rate Hike in October

The Reserve Bank of India is widely expected to raise its benchmark repo rate by 25 basis points during its Monetary Policy Committee meeting from October 5 to 7, 2026. This would mark the first interest rate increase since February 2023. The move is driven by retail inflation reaching an eight-month high of 4.82% in August, exceeding the bank's 4% medium-term target, alongside Brent crude oil prices surpassing $100 per barrel.

Analysts cite several pressures forcing the central bank's hand, including a 6% depreciation of the rupee this year and a tightening cycle by the United States Federal Reserve. Additionally, a surge in liquidity—fueled by Indian banks raising $133 billion from the diaspora—has pushed interbank rates below the repurchase rate, necessitating a hawkish response to prevent inadvertent monetary easing.

Projections for the duration of the hiking cycle vary. Nomura Holdings predicts a limited recalibration of 25 to 50 basis points, with hikes in October and December to reach a terminal rate of 5.75%. Conversely, Union Bank of India expects the repo rate to climb between 5.75% and 6% throughout FY27. While most economists anticipate an October start, some analysts from Bank of Baroda and India Ratings suggested the bank might maintain the status quo until December to further monitor the inflation cycle.

Economic headwinds include a deficient monsoon affecting food harvests and a decline in manufacturing PMI to its lowest level since 2021. Despite these risks, strong GDP growth of 7.8% in the first quarter of FY27 provides the central bank room to tighten policy.