Economists had widely expected the hike, with most surveys pointing to a 25-basis-point move
The Reserve Bank of India‘s Monetary Policy Committee on Wednesday raised the repo rate by 25 basis points to 5.50 per cent, marking the central bank’s first rate hike in over three years, as rising inflation, elevated crude oil prices and pressure on the rupee prompted a shift away from its prolonged pause.
Announcing the decision at 10 am, RBI Governor Sanjay Malhotra said the six-member MPC had voted to raise the policy repo rate from 5.25 per cent, where it had held for four consecutive meetings following 125 basis points of cuts through 2025. The move marks the RBI’s first rate increase since February 2023, when the repo rate last stood at 6.50 per cent before the central bank began its subsequent easing cycle.
What drove the decision
The hike had been widely anticipated heading into the three-day meeting, which ran from October 5 to 7. A Reuters poll of 61 economists found 35 expecting a 25-basis-point increase, while a separate Business Standard survey found eight of 10 respondents anticipating a hike. Economists pointed to a combination of factors building pressure on the central bank: inflation had been moving higher in recent months with pressures becoming more broad-based, crude oil prices remained elevated, and global interest rates had been trending upward.
At its August meeting, the RBI had kept the repo rate unchanged at 5.25 per cent and maintained its “neutral” stance, with Malhotra saying at the time that the committee wanted more clarity on the inflation outlook before acting. SBI Research had recommended the October increase as the first of two expected 25-basis-point hikes, with a further increase floated for December.
What changes for borrowers and depositors
A repo rate hike typically translates into higher borrowing costs for home, auto and personal loans as banks adjust their lending rates upward, while also offering better returns for fixed deposit holders as banks raise deposit rates to attract funds. The Marginal Standing Facility (MSF) rate and Bank Rate, which move in tandem with the repo rate, are also expected to be revised upward from their previous level of 5.50 per cent.
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