AMN
As expected, the Reserve Bank of India (RBI) has raised the repo rate by 25 basis points to 5.50 per cent, marking the first increase in the benchmark rate since February 2023.
The RBI had kept the repo rate unchanged at 5.25 per cent for the past four policy reviews after cutting it by a cumulative 125 basis points in 2025.
The rate hike comes amid rising retail inflation and elevated crude oil prices. The six-member Monetary Policy Committee has shifted its policy stance towards calibrated tightening.
At its policy meeting, held between October 5 and October 7, the committee changed the stance from ‘neutral’ to ‘calibrated tightening’.
The RBI changed the Standing Deposit Facility (SDF) rate to 5.25 per cent, while the Marginal Standing Facility (MSF) rate and the bank rate were changed to 5.75 per cent.
RBI Governor Sanjay Malhotra said that further rate cuts are off the table in near term.
“The duration and extent of the rate hike cycle, therefore, would be contingent on the actual growth inflation development and outlook, especially that of underlying inflation, extent of broadening of price pressure, and speed round effects on the supply shock,” he said.
RBI MPC: Growth outlook
Malhotra said the central bank has projected real GDP growth at 7.1 per cent for FY27.
The RBI said a weak south-west monsoon and strong El Niño conditions could hurt the outlook for agriculture and rural demand. However, adequate foodgrain stocks and steps taken by the government are expected to limit the impact. Continued growth in the services sector and largely stable employment conditions are likely to support urban demand.
“Strong capacity utilisation, robust credit flows and the government’s thrust on infrastructure are expected to
sustain investment activity. While services exports are expected to remain buoyant, bilateral trade agreements should boost merchandise exports,” the RBI said.