Bi-monthly Monetary Policy: RBI Raises Repo Rate by 25 bps After Over 3 Years
The Reserve Bank of India’s Monetary Policy Committee (MPC) has unanimously decided to increase the policy repo rate by 25 basis points to 5.50% amid rising inflationary pressures and continued uncertainty in the global economy.
The decision was taken at the 63rd meeting of the MPC, held from 5 to 7 October 2026 under the chairmanship of RBI Governor Sanjay Malhotra.
Along with the repo rate hike, the MPC also changed its monetary policy stance to “calibrated tightening”, indicating that further policy action could involve either another rate increase or a pause depending on the evolving inflation and growth outlook.
Following the 25-basis-point increase in the repo rate, other key policy rates have also been adjusted.
| Policy Rate | Revised Rate |
|---|---|
| Repo Rate | 5.50% |
| Standing Deposit Facility (SDF) | 5.25% |
| Marginal Standing Facility (MSF) | 5.75% |
| Bank Rate | 5.75% |
A basis point (bps) is equal to one-hundredth of a percentage point. Therefore, a 25-bps hike represents an increase of 0.25 percentage point.
The MPC said inflation pressures have strengthened compared with the previous year.
According to the policy assessment, CPI inflation increased to 4.8% in August 2026 from 4.5% in July, mainly because of higher food and fuel prices. Core inflation also rose to 4.2%, indicating that price pressures were becoming broader.
The RBI highlighted several factors that could keep inflation elevated, including:
The MPC therefore considered a policy rate increase necessary to contain inflation expectations and prevent supply-side price pressures from becoming more widespread.
The MPC also changed its policy stance to calibrated tightening.
According to the RBI, this means that rate cuts are unlikely in the near term. Future monetary policy decisions could involve either a rate hike or a pause, depending on inflation, economic growth and broader financial conditions.
However, two MPC members — Dr. Nagesh Kumar and Prof. Ram Singh — preferred retaining the previous neutral stance.
Despite global economic uncertainty, the RBI noted that the Indian economy remains resilient.
India’s real GDP grew by 7.8% in Q1 of FY 2026-27, supported by strong private consumption, fixed investment, manufacturing activity and exports.
The RBI has projected real GDP growth at 7.1% for FY 2026-27.
| Period | GDP Growth Projection |
|---|---|
| FY 2026-27 | 7.1% |
| Q2 FY27 | 7.2% |
| Q3 FY27 | 6.9% |
| Q4 FY27 | 6.8% |
| Q1 FY 2027-28 | 7.1% |
The central bank said investment activity is expected to remain supported by strong capacity utilisation, robust credit flows and the government’s continued focus on infrastructure.
The RBI projected CPI inflation at 5.2% for FY 2026-27.
| Period | CPI Inflation Projection |
|---|---|
| FY 2026-27 | 5.2% |
| Q2 FY27 | 4.9% |
| Q3 FY27 | 6.0% |
| Q4 FY27 | 5.7% |
| Q1 FY 2027-28 | 5.6% |
Core inflation is projected at 4.4% for FY 2026-27.
The RBI expects inflationary pressures to remain elevated in the near term because of weather-related risks, commodity prices and global geopolitical developments.
The MPC noted that the global economic environment continues to remain uncertain due to the West Asia conflict, volatility in crude oil prices and tighter financial conditions.
The RBI also referred to higher interest rates across major economies. According to the policy statement, the US Federal Reserve raised rates by 25 basis points in September 2026, while other major central banks have also adopted tighter monetary policy.
Higher global interest rates, elevated public debt and volatile energy prices remain major risks to the global economic outlook.
The repo rate is the rate at which the RBI lends short-term funds to commercial banks.
An increase in the repo rate can raise borrowing costs for banks. If banks pass this increase on to customers, interest rates on loans such as home loans, auto loans and other floating-rate loans may rise.
Higher interest rates generally help reduce demand in the economy, which can assist the RBI in controlling inflation.
The Monetary Policy Committee is responsible for determining India’s benchmark policy interest rate while maintaining price stability and supporting economic growth.
The October 2026 meeting was chaired by RBI Governor Sanjay Malhotra.
Other members present included:
The MPC voted unanimously in favour of raising the repo rate by 25 basis points.
| Particular | Details |
|---|---|
| MPC Meeting | 63rd |
| Meeting Dates | 5–7 October 2026 |
| MPC Chairman | Sanjay Malhotra |
| Revised Repo Rate | 5.50% |
| Repo Rate Change | +25 bps |
| SDF Rate | 5.25% |
| MSF Rate | 5.75% |
| Bank Rate | 5.75% |
| Policy Stance | Calibrated Tightening |
| FY27 GDP Forecast | 7.1% |
| FY27 CPI Inflation Forecast | 5.2% |
| Next MPC Meeting | 2–4 December 2026 |
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