The Reserve Bank of India raised its repo rate by 25 basis points to 5.50% on 7 October, its first increase since February 2023, after retail inflation rose for ten straight months.
The Reserve Bank of India’s Monetary Policy Committee, chaired by Governor Sanjay Malhotra, raised the repo rate to 5.50% from 5.25% on 7 October 2026, according to search summaries of reports by CNBC, Yahoo Finance and Quartz. It is the first increase since February 2023, and the committee changed its policy stance to calibrated tightening, according to the same summary.
The reason is inflation. India’s retail inflation has risen for 10 months in a row and reached 4.8% in August, above the central bank’s medium-term target of 4%, according to the summary. The gap is 0.8 percentage points, which is Delima News’ calculation.
The bank raised its inflation forecast for the 2026-27 financial year to 5.2% from 5.0%, and its forecast for growth to 7.1%, according to the same summary. The sources reviewed do not say what the growth forecast was before.
Malhotra said that rate cuts are off the table in the near term, and that the next policy action can only be a rate rise or a pause, according to the summary. HSBC and Goldman Sachs expect the RBI to raise rates again in December, according to the search summary. These are the banks’ expectations and not a commitment from the RBI.
The move is part of a wider tightening. The European Central Bank raised rates in September, and the Bank of England held rates while three of its members voted for a rise, as Delima News has reported. Those central banks are responding to higher energy costs from the war with Iran, while the sources reviewed describe the RBI’s move as a response to domestic inflation.
The rise in India is small, 25 basis points, which is a quarter of a percentage point. The sources reviewed do not give the effect on the cost of loans for households and businesses, or on banks’ lending rates.
The IMF raised its growth forecast for India to 7.0% for 2026 in its latest outlook, as Delima News has reported, so the central bank is raising rates while the economy grows quickly. Its own forecast of 7.1% is close to the IMF’s.
The inflation numbers can be put together. Inflation of 4.8% in August is 0.8 points above the 4% target, and the RBI expects an average of 5.2% in the 2026-27 financial year, 1.2 points above the target. The central bank is therefore forecasting that inflation will stay above its target for the whole year, a reading that Delima News draws from the figures and that the RBI’s statement may express differently.
The rate-setting committee’s vote and the minutes of the meeting were not available in the sources reviewed, so it is not known whether the decision was unanimous.
The next policy meeting will show whether the HSBC and Goldman Sachs forecasts of a December rise were right, and Delima News will report it.
Image: The Reserve Bank of India headquarters in Mumbai (file photo). Photo: DesiBoy101 / Wikimedia Commons (CC BY 4.0)
