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 increase since February 2023. Governor Sanjay Malhotra announced a unanimous decision by the Monetary Policy Committee to shift the policy stance from neutral to calibrated tightening. This move aims to anchor inflation expectations amid pressures from the West Asia conflict, volatile crude oil prices exceeding $100 per barrel, and a deficient southwest monsoon caused by El Niño conditions.

Alongside the hike, the central bank revised its FY27 real GDP growth projection upward to 7.1% from 6.7%, while raising the CPI inflation forecast to 5.2%. Recent data supports the hawkish shift, with September consumer price inflation surging to 5.54%, a 22-month high driven largely by food and transport costs. Governor Malhotra explicitly stated that rate cuts are "off the table in the near term," noting that future actions will be limited to further hikes or pauses.

The decision triggered immediate volatility in Indian equity markets, with the Sensex and Nifty 50 closing lower. The Indian rupee also faced pressure, hitting a five-month low near 96.78 against the U.S. dollar. Major lenders, including Punjab National Bank and Bank of Baroda, quickly raised their repo-linked lending rates, increasing borrowing costs for home and vehicle loans. While some analysts project a terminal rate of 6% by December, others warn that inflation could reach 7%, potentially requiring further tightening.