RBI's Monetary Policy Committee likely to raise repo rate by 25 basis points

The Reserve Bank of India's Monetary Policy Committee is set to begin a rate hike cycle by raising the policy repo rate by at least 25 basis points at its upcoming meeting scheduled for October 5 to 7, according to the State Bank of India's Economic Research Department. The rate would increase from the current 5.25 per cent to 5.50 per cent. SBI economists believe the balance of risks has tilted decisively in favour of this 25-basis-point increase at this juncture.

The ERD's economists cited multiple factors supporting pre-emptive action. A combination of broadening inflationary pressures, worsening global macroeconomic conditions, evolving liquidity conditions, and renewed global repricing of risks strengthens the case for rate increases. Globally, central banks have moved decisively—South Korea and the Philippines raised rates in August, followed by the US, Japan, the euro area, and New Zealand in September amid renewed inflationary risks. With geopolitical tensions and crude-price risks, the RBI economists argue it would be prudent to act pre-emptively rather than lag behind the curve. Additionally, inflation is becoming increasingly broad-based, with CPI inflation rising to 4.82 per cent in August 2026 from 4.45 per cent in July 2026, reflecting a generalization of price pressures with possibilities of future pass-through effects.

Beyond the repo rate decision, the ERD expects the RBI to upgrade GDP forecasts upwards by 30 basis points to 7.0 per cent and inflation forecasts by 20 basis points to 5.2 per cent for FY27. The SBI economists also noted that the exchange rate needs immediate protective guardrails to thwart speculation.