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 decision followed a three-day meeting of the Monetary Policy Committee of the Reserve Bank of India, which voted unanimously to shift the policy stance from neutral to calibrated tightening.

Governor Sanjay Malhotra stated that the inflation outlook is no longer benign, citing pressures from fuel and food prices driven by weak monsoon rains and global oil price spikes linked to the West Asia conflict. Consumer inflation reached 4.82% in August, exceeding the bank's 4% medium-term target for three consecutive months. Despite the tightening, the bank raised its FY27 real GDP growth projection to 7.1% from 6.7%.

The announcement triggered an immediate market reaction, with the Sensex dropping over 540 points and the Nifty 50 falling below 22,580. The Indian rupee also depreciated to 96.45 against the U.S. dollar, pressured by foreign fund outflows and a strong dollar index. Additionally, the bank announced the creation of a technical consultative committee for financial markets and new measures to include bank deposits in consolidated account statements.