Our Bureau
Mumbai
The Reserve Bank of India (RBI) on Wednesday raised the benchmark repo rate by 25 basis points to 5.5 per cent, its first rate hike since February 2023, as rising inflation, higher energy prices and global uncertainties prompted the central bank to tighten monetary policy.
The six-member Monetary Policy Committee (MPC) unanimously approved the rate increase. It also shifted its policy stance from “neutral” to “calibrated tightening”, signalling that further rate hikes remain possible depending on inflation and economic conditions.
The RBI raised its inflation forecast for 2026-27 to 5.2 per cent from its earlier projection of 5 per cent. Retail inflation had accelerated to 4.8 per cent in August, remaining above the central bank’s medium-term target of 4 per cent for the third consecutive month. The RBI has also flagged higher food and fuel prices, elevated crude oil prices and geopolitical tensions as key risks to the inflation outlook.
Despite these pressures, the central bank retained an optimistic view of economic growth. It raised its FY27 real GDP growth forecast to 7.1 per cent from 6.7 per cent, supported by resilient domestic demand, consumption and investment. GDP growth in the April-June quarter stood at 7.8 per cent, exceeding the RBI’s earlier expectations.
The rate hike is expected to increase borrowing costs for consumers and businesses, potentially pushing up interest rates on home, vehicle and personal loans. Deposit rates could also see upward movement.
The RBI’s shift towards calibrated tightening indicates that interest-rate cuts are unlikely in the immediate term. However, Governor Sanjay Malhotra said the timing and extent of any further action would depend on incoming inflation and growth data.
The move comes amid elevated global energy prices and geopolitical uncertainty, with the RBI seeking to contain price pressures without undermining India’s relatively strong growth momentum.