RBI Raises Repo Rate 25 bps to 5.50%, Shifts Stance to Calibrated Tightening

The Reserve Bank of India's Monetary Policy Committee raised the repo rate by 25 basis points to 5.50% on October 8, marking the first increase since February 2023. Governor Sanjay Malhotra declared the rate-cut cycle over and shifted the policy stance from neutral to "calibrated tightening."

Retail inflation surged to 4.82% in August from 3.5% in April, breaching the 4% medium-term target. The RBI now projects inflation averaging 5.2% for 2026-27, peaking at 6% in the December quarter before easing to 5.7% in March.

“Rate cuts are off the table in the near term, and policy action ahead can only be a rate hike or a pause.”

The India crude basket jumped from $82 per barrel in July to $116.1 in September, driven by the re-escalation of the West Asia conflict. Higher oil prices widen the import bill, pressure the rupee, and risk broadening inflation beyond energy and food.

While the central bank sees limited signs of supply-side pressures embedding in broader pricing or strong demand-driven inflation, it warned that persistent cost pass-through could worsen the outlook. Real GDP growth remains robust at around 7.8%, giving the RBI room to tighten.

Economists were divided ahead of the decision. A PTI poll of 16 experts showed most expected a hike, though Larsen & Toubro's Sachchidanand Shukla argued for a pause citing no clear demand overheating. SBI Research and BofA Securities had advocated for 25-100 basis points of cumulative tightening.