RBI raises repo rate 25bp to 5.50%, first hike since 2023

Centre · 2The Reserve Bank of India raised its benchmark repo rate by 25 basis points to 5.50% from 5.25% on 7 October 2026, its first hike since February 2023. 1 2 Centre · 2The six-member monetary policy committee voted unanimously for the hike. 1 2 Centre · 2The committee also changed its policy stance to "calibrated tightening" from "neutral". Governor Sanjay Malhotra said rate cuts are off the table in the near term and that the next move can only be a hike or a pause, depending on conditions and the outlook. 1 2

Centre · 1Gulf News reports that the standing deposit facility rate is now 5.25%, and that the marginal standing facility rate and the bank rate move to 5.75%. 1 Centre · 1The RBI last tightened in February 2023, ending six increases totalling 250 basis points that began in May 2022. It then cut rates by 125 basis points from February 2025, reaching 5.25% in December 2025, according to Gulf News. 1 Centre · 2Both outlets tie the decision to the Middle East conflict. CNA says the RBI held rates after the Iran war began in February while it assessed oil-price volatility, and that resilient GDP growth last quarter let it focus on costs. Gulf News says Malhotra cited a sudden re-escalation of the West Asia conflict in September, with crude prices hardening and swinging sharply. 2 1

Centre · 1Retail inflation rose to 4.8% in August, the third straight month above the RBI's 4% medium-term target. Malhotra said inflation and its outlook "are not benign as they were last year" and cited some evidence of "generalisation of inflation". 2 Centre · 1Gulf News gives the RBI's projections: CPI inflation of 5.2% this year, with 4.9% in the second quarter, 6% in the third and 5.7% in the fourth, 5.6% in the first quarter of next year, and core inflation at 4.4%. It says price pressure has reached food commodities and is not restricted to oil. 1 Centre · 1The rupee has been near record lows over the past week. CNA says the RBI has rolled out measures to attract dollar inflows, including a diaspora deposit scheme that raised around US$127 billion. It adds that foreign investors keep selling Indian equities and crude is around US$100 a barrel. 2

Centre · 1Gulf News reports India's merchandise trade deficit was $58.7 billion in July and August, against $55.1 billion a year earlier. Malhotra said the RBI will allow orderly exchange rate adjustments while curbing excessive volatility. 1 Centre · 1CNA notes India normally sources about half its crude through the Strait of Hormuz, which it says has been effectively closed since the war began, and analysts call India among the economies most vulnerable to an energy shock. It also cites a weak monsoon that could lift food prices. 2 Centre · 1Analysts expect more tightening. Garima Kapoor of Elara Capital said she sees a likelihood of another 50 basis point hike this cycle because rising global rates have reduced the RBI's "degrees of freedom". 2

Centre · 1Gulf News adds that non-resident Indians with rupee deposits could benefit, but banks do not always pass on policy hikes quickly and Malhotra observed that deposit and lending rates had moved unevenly in July and August. It says the dirham-rupee rate still determines what NRE depositors receive in the UAE. 1