Reserve Bank of India Hikes Repo Rate to 5.5%

The Reserve Bank of India raised its benchmark repo rate by 25 basis points to 5.5% on October 7, 2026, marking the first interest rate increase since February 2023. The Monetary Policy Committee voted unanimously for the hike and shifted the central bank's policy stance from neutral to calibrated tightening. Governor Sanjay Malhotra stated that rate cuts are "off the table in the near term," as the bank prioritizes price stability amid rising food and fuel costs, volatile crude oil prices, and geopolitical instability in West Asia.

Despite the tightening, the RBI raised its FY27 real GDP growth projection to 7.1% from 6.7%, citing resilient private consumption and strong investment activity. However, the bank also increased its FY27 inflation forecast to 5.2%. The decision triggered an immediate decline in Indian equity markets, with the Sensex and Nifty 50 both falling as investors reacted to the hawkish shift and rising Brent crude prices, which exceeded $101 per barrel.

The rate hike is expected to increase monthly EMIs for retail borrowers with floating-rate loans, particularly affecting the housing and automobile sectors. Several public and private sector banks, including Punjab National Bank and Bank of Baroda, announced immediate increases to their repo-linked lending rates. While some analysts predict further hikes by December, others suggest the cycle will remain shallow. Meanwhile, the Indian rupee hit a five-month low, nearing 96.85 against the US dollar, driven by foreign fund outflows and global economic volatility.