India’s Central Bank Raises Rates 25 Basis Points to 5.50%, Adopts Calibrated Tightening
Key Facts
The Reserve Bank of India raised its repo rate by 25 basis points to 5.50%, with the Monetary Policy Committee voting unanimously in favor at the close of its 63rd meeting, held from October 5 to 7, 2026, under Governor Sanjay Malhotra. The bank announced on October 7 that it had changed its monetary policy stance to "calibrated tightening." The decision puts the rate increase and the change in stance at the center of the bank’s response to inflation developments. The vote showed agreement among committee members on raising the rate, while the new stance did not command the same consensus. Two members favored retaining a neutral stance, while the committee decided to adopt calibrated tightening.
After the increase, the standing deposit facility rate stood at 5.25%, while the marginal standing facility rate and the bank rate remained at 5.75%. The committee had kept the repo rate at 5.25% on August 5, while retaining a neutral stance, before raising the rate and changing its stance in October. A Reuters poll ahead of the decision indicated that about 60% of economists expected a 25-basis-point increase to 5.50%. The size and level of the hike therefore matched the expectations of that share of poll participants. The poll results also showed that a majority of respondents expected another hike in December, an expectation among economists rather than an announced bank decision.
The bank linked its policy tightening to widening price pressures and persistent inflation risks, as consumer price inflation rose to 4.8% in August from 4.5% in July. It attributed the increase to rising food and fuel prices and said core inflation was 4.2% in August, while core inflation excluding precious metals was 2.9%. One sign of widening pressures was that the share of consumer price basket items with inflation above 4% reached 37% in August, compared with 20% in March. Annual food inflation was 7.74% in September, according to the official preliminary reading. The bank also cited rising global energy and food costs as a factor pushing inflation higher and calling for tighter policy by major central banks.
Alongside price risks, the bank said real gross domestic product growth was 7.8% in the first quarter of fiscal year 2026-27, above expectations. It raised its growth forecast for the fiscal year to 7.1% from 6.7% in its August forecast. Its announced quarterly path includes growth of 7.2% in the second quarter, 6.9% in the third and 6.8% in the fourth. The bank’s statement forecast inflation at 5.2% for fiscal year 2026-27, with 6.0% in the third quarter and 5.7% in the fourth. In a separate statement, the bank said average headline inflation could approach 5.8% over the next three quarters, and that core inflation was projected at 4.4% for the fiscal year; these estimates were presented in different formats and for different periods from the statement’s quarterly forecasts.
The bank said a rate cut was unlikely in the near term and that future policy options were limited to raising or holding rates, depending on data and forecasts. It added that the duration and extent of the hiking cycle would depend on actual growth and inflation developments and their outlook. Upcoming dates include publication of the minutes of the October meeting on October 21, 2026, followed by the committee’s next meeting from December 2 to 4. India’s Ministry of Statistics calendar set November 12 as the release date for the all-India consumer price index. These dates follow a preliminary reading that showed food inflation at 7.74% in September, while the calendar alone did not determine what the index reading would mean for the rate outlook.