Reserve Bank of India Hikes Repo Rate to 5.50%

The Reserve Bank of India raised its benchmark repo rate by 25 basis points to 5.50% on October 7, 2026, marking the first increase since February 2023. The Monetary Policy Committee of the Reserve Bank of India voted unanimously for the hike and shifted its policy stance from neutral to calibrated tightening. Governor Sanjay Malhotra stated that rate cuts are "off the table in the near term," noting that future actions will be limited to further hikes or pauses depending on growth and inflation developments.

The decision responds to accelerating inflation, which reached 4.82% in August, driven by volatile crude oil prices, supply chain bottlenecks, and food price increases in sugar and onions. These pressures are compounded by geopolitical instability in West Asia and weak monsoon rains caused by El Niño. Despite the tightening, the central bank raised its FY27 real GDP growth projection to 7.1% from 6.7%, citing resilient private consumption and strong investment activity.

The rate hike triggered an immediate decline in Indian equity markets, with the Sensex dropping over 429 points and the Nifty 50 falling below 22,603. The Indian rupee also weakened to a five-month low against the U.S. dollar. Retail borrowers with floating-rate loans face higher monthly EMIs or extended repayment tenures, while savers may benefit from higher fixed deposit rates. Some analysts, including those from Crisil and State Bank of India, anticipate further tightening in December, with potential hikes of up to 50 basis points.