RBI Repo Rate 2026: Why RBI MPC lifted repo rates for the first time in nearly four years in October policy

Listen to this article in summarized format Loading...× Subscribe to Unlock AI Briefing and Premium ContentNew Year Offer 24 Hours LeftSubscribe NowAlready a member? Sign InWhat's IncludedExclusive StoriesDaily ePaper AccessSmart Market ToolsCurated Investment IdeasAd-lite Experience Subscription PTIThe Reserve Bank of India’s decision to raise the repo rate by 25 basis points to 5.50% comes down to three broad shifts in the macroeconomic picture.

The Reserve Bank of India’s decision to raise the repo rate by 25 basis points to 5.50% comes down to three broad shifts in the macroeconomic picture.

The country's growth has held up better than expected, inflation risks are building again and the global interest-rate environment is making it harder for India to maintain a wide policy gap.The rate hike marks the first increase since February 2023, when it stood at 6.6%, and a reversal from the RBI’s rate-cut cycle, with the central bank now having greater confidence that the economy can absorb some monetary tightening without a significant hit to growth.Also Read: RBI MPC Meeting 2026: Malhotra & Co hike repo rate by 25 bps to 5.50% for first time in nearly 4 years as inflation pressures build"The MPC noted that the global context, on account of geopolitical developments, remains challenging.

Nonetheless, the Indian economy has been strong, and the economic momentum remains broad-based," said Sanjay Malhotra in his address.Growth has proved more resilientIndia’s GDP expanded 7.8% in the June quarter, 80 basis points above the RBI’s forecast, while high-frequency indicators for July and August, though showing some moderation, continue to point to firm economic activity.Live EventsThe resilience has also been reflected in forecasts from global institutions.

Multiple rating agencies around the world have been lifting their FY27 growth projections for India.Stronger domestic consumption, public investment and continued activity in manufacturing and services have helped the economy absorb the impact of higher energy prices, geopolitical tensions and global trade uncertainty.Also Read: RBI GDP Growth 2026: Malhotra & Co raise FY27 GDP forecast to 7.1% from 6.7%“Growth has withstood the shocks of the West Asia war and there is more confidence now that the economy will be able to withstand a moderate tightening of policy rates,” Yes Bank chief economist Indranil Pan said in a report on October 1.That resilience gives the MPC greater room to prioritise inflation without being seen as putting an already weak economy at risk.Inflation risks are building againRetail inflation rose to 4.82% in August from 4.45% in July, after having remained relatively benign earlier in the year.

Economists now expect inflation to accelerate sharply in the December quarter, with IDFC First Bank seeing it at 6.1% and Bandhan AMC expecting it to cross 6%.The RBI had projected inflation at 4.7% for the September quarter and 5.9% for the December quarter in its August policy.

But higher crude prices and a patchy monsoon have increased the risk that actual inflation could overshoot....