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RBI raises repo rate to 5.50 percent as inflation risks rise

Oct 8, 6:22 AM2 min read

Drafted by AI from the sources below, fact-checked by the Ajako Taja Editorial Team · How we use AI

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The Reserve Bank of India hiked interest rates for the first time since 2023 on Wednesday, moving the repo rate to 5.50% to combat 10 months of rising inflation.

The Reserve Bank of India on Wednesday increased its benchmark repo rate by 25 basis points to 5.50 percent, marking the first such hike since 2023.

RBI Governor Sanjay Malhotra announced that the monetary policy committee decided to raise the repo rate from 5.25 percent to a one-year high. Malhotra described the move as a shift to "calibrated tightening," noting that the inflation outlook is no longer as benign as it was last year. International reported that the hike met the expectations of economists as the central bank moves to arrest accelerating price growth.

The decision comes as retail inflation in India rose for 10 consecutive months, reaching 4.8 percent in August. This figure exceeds the RBI's medium-term target of 4 percent. According to Online Khabar, the central bank is acting to control prices as rising oil costs, driven by tensions in the Middle East, put further pressure on the economy. Reuters reported that Indian shares opened lower as the hawkish stance and rising oil prices dented market sentiment.

Financial institutions including HSBC and Goldman Sachs now expect another rate hike in December. Governor Malhotra stated that rate cuts are currently "off the table" and that future actions will either be further hikes or a pause. While the RBI raised its economic growth estimate for the 2026/27 financial year to 7.1 percent, it warned that geopolitical tensions and trade frictions could weigh on this outlook.

Market reaction was immediate on Wednesday, with the BSE Sensex dropping 429 points, or 0.59 percent, following the announcement. Online Khabar noted that the increase in the repo rate will likely lead to higher borrowing costs for consumers seeking loans for housing and vehicles. The RBI expects headline inflation to remain at 5.2 percent for the 2026/27 financial year.

Background

India meets nearly 85 percent of its fuel needs through imports and faces supply risks from the Iran war and the Strait of Hormuz. Additionally, the World Bank noted that India experienced its fourth-driest June-August period since 1960, which could lead to higher food prices via El Niño effects.