After nearly 4 years, RBI raises repo rate by 25 bps as inflation bites
India's central bank raised its repo rate by 25 basis points to 5.5%, its first hike in four years, to combat rising inflation, exacerbated by oil prices and weak monsoons, while the economy grows strongly.
India's central bank raised its repo rate by 25 basis points to 5.5%, its first hike in four years, to combat rising inflation, exacerbated by oil prices and weak monsoons, while the economy grows strongly.
India's central bank raised its repo rate by 25 basis points to 5.5%, its first hike in four years, to combat rising inflation, exacerbated by oil prices and weak monsoons, while the economy grows strongly.
The Reserve Bank of India on Wednesday raised its benchmark repo rate by 25 basis points to 5.5%, its first rate hike in nearly four years, as rising inflation and 'resilient' economic growth prompted the central bank to tighten monetary policy.
The Monetary Policy Committee (MPC) also shifted its policy stance to ‘calibrated tightening’ from ‘neutral’, signalling that a rate cut is unlikely in the near term amid persistent price pressures.
The rate hike comes as higher oil prices, triggered by the Iran conflict, have added to inflationary pressures and squeezed consumer purchasing power. Weak monsoon rains linked to El Nino have further compounded price pressures in the world's third-largest economy.
Nearly 60% of economists polled by Reuters had expected the MPC to raise the repo rate by 25 basis points.
Consumer inflation accelerated to 4.82% in August, up from a year earlier and above the RBI's 4% medium-term target for the third consecutive month. Rising food and fuel prices have begun to feed into broader inflation, with nearly half of the consumer basket recording inflation above 4%.
RBI follows global central banks in policy tightening
The RBI's decision also comes against the backdrop of recent policy moves by major central banks in developed economies.
The US Federal Reserve last month raised its benchmark interest rate by 25 basis points as it sought to contain inflation driven by higher oil prices and other factors.
The European Central Bank had also raised its key interest rate by 25 basis points earlier.
Higher global interest rates can influence capital flows, exchange rates and domestic financial conditions, adding to the factors considered by the RBI while setting monetary policy.
RBI raises GDP growth projection
At the same time, India's economic growth has remained robust, giving the central bank greater room to raise borrowing costs for consumers and businesses without immediately risking a sharp slowdown.
India's GDP grew 7.8% in the April-June quarter, well above the RBI's earlier forecast of 7%.
The central bank raised its real GDP growth projection for 2026-27 by 40 basis points to 7.1%, while cautioning that persistent geopolitical tensions and global economic risks could weigh on the outlook.
Unveiling the October bi-monthly monetary policy, RBI Governor Sanjay Malhotra said domestic economic activity had remained resilient despite global headwinds, with real GDP growth reaching 7.8% in the first quarter of 2026-27.
“Growth was driven by resilient private consumption and strong investment activity, while the contribution of net exports also remained positive,” Malhotra said.
However, he warned that prolonged geopolitical tensions, elevated international commodity prices, additional frictions in global trade and tighter global financial conditions could weigh on economic growth.
“Taking all these factors into consideration, real GDP growth for 2026-27 is projected at 7.1%; Q2 at 7.2%; Q3 at 6.9%; and Q4 at 6.8%,” Malhotra said.