MUMBAI, Oct 7: The Reserve Bank of India (RBI) on Wednesday raised the policy repo rate by 25 basis points to 5.50 per cent, as expected by markets, amid growing inflationary pressures, elevated global bond yields and resilient domestic economic activity.
The decision was taken by the Monetary Policy Committee (MPC), marking a shift from its August meeting, when the central bank had kept the repo rate unchanged at 5.25 per cent and maintained a neutral policy stance.
RBI Governor Sanjay Malhotra said the MPC unanimously decided to increase the policy repo rate by 25 basis points after assessing evolving economic and financial conditions and the outlook.
Following the hike, the Standing Deposit Facility (SDF) rate stands at 5.25 per cent, while the Marginal Standing Facility (MSF) rate and Bank Rate have been raised to 5.75 per cent. The MPC also shifted its policy stance to calibrated tightening by a majority.
The rate hike comes amid concerns over rising inflation. Consumer Price Index (CPI) inflation stood at 4.82 per cent in August, while economists expect inflation to rise above 5 per cent during FY27. Inflation is projected to peak at around 5.9 per cent in the third quarter, with weak monsoon conditions and crude oil prices near USD 100 per barrel adding to the risks.
Global financial conditions have also turned less favourable. The US Federal Reserve raised its policy rate by 25 basis points in September, while US 10-year Treasury yields have remained elevated at around 5.3 per cent. The Indian rupee was trading at around ₹96.36 against the US dollar at the time of the report.
Liquidity conditions were another factor considered by the RBI. The central bank's special forex swap facility had mobilised USD 132.98 billion through FCNR(B) deposits as of August 31, adding significant liquidity to the banking system and increasing the need for calibrated absorption.
Despite inflation concerns, domestic economic activity remains strong. India’s economy grew 7.8 per cent in the first quarter of FY27, while high-frequency indicators continued to show robust domestic demand and strength in the manufacturing and services sectors.
The latest rate hike is expected to influence monetary policy in the coming months. Economists had earlier estimated that cumulative tightening could reach up to 75 basis points, with the repo rate potentially moving towards 6 per cent by the end of FY27, depending on inflation, crude oil prices and global financial conditions.
