The Reserve Bank of India (RBI) has raised the policy repo rate by 25 basis points to 5.50% from 5.25%, marking the first rate increase in nearly four years. The decision was taken unanimously by the Monetary Policy Committee (MPC) at its 63rd meeting held from October 5 to 7, 2026, under RBI Governor Sanjay Malhotra.
The MPC also changed its policy stance to calibrated tightening. The Standing Deposit Facility (SDF) rate now stands at 5.25%, while the Marginal Standing Facility (MSF) rate and Bank Rate are 5.75%.
RBI Sees Higher Inflation Risks
The RBI said inflation and its outlook are no longer as benign as they were last year. CPI inflation rose to 4.8% in August 2026 from 4.5% in July, while core inflation increased to 4.2%. The share of CPI items recording inflation above 4% rose to about 37% in August.
The central bank cited deficient monsoon conditions, ongoing El Niño conditions and elevated energy and commodity prices as risks to the inflation outlook. It projects CPI inflation at 5.2% for 2026-27, with Q2 at 4.9%, Q3 at 6.0% and Q4 at 5.7%. Core inflation is projected at 4.4%.
The RBI expects headline CPI inflation to average almost 5.8% over the next three quarters. It also said there is some evidence of elevated inflation expectations and broader price pressures, although there are limited signs that supply-side pressures have become embedded in pricing behaviour.
Growth Outlook Remains Strong
Despite global headwinds, the RBI said India’s economy has remained resilient. Real GDP growth was 7.8% in Q1 2026-27, supported by private consumption, fixed investment, merchandise exports and services exports.
The RBI projects real GDP growth at 7.1% for 2026-27, with Q2 at 7.2%, Q3 at 6.9% and Q4 at 6.8%. Growth for Q1 2027-28 is projected at 7.1%, with risks assessed as evenly balanced.
The central bank said rate cuts are off the table in the near term. Future policy action can be a rate hike or a pause, depending on growth, inflation, underlying price pressures and the impact of supply shocks and demand conditions.
Two MPC members, Dr. Nagesh Kumar and Prof. Ram Singh, voted for retaining a neutral stance, although the overall MPC decision was to adopt calibrated tightening.
The minutes of the October MPC meeting will be published on October 21, 2026. The next MPC meeting is scheduled for December 2–4, 2026.
Q1. What is the new RBI repo rate? The RBI raised the policy repo rate by 25 basis points to 5.50% from 5.25%.
Q2. Why did the RBI raise the repo rate? The RBI said inflation and its outlook are less benign than last year, with continued risks from deficient monsoon conditions, El Niño and elevated energy and commodity prices.
Q3. What is RBI’s inflation forecast for 2026-27? The RBI projects CPI inflation at 5.2% for 2026-27, with Q2 at 4.9%, Q3 at 6.0% and Q4 at 5.7%.
Q4. What is RBI’s GDP growth forecast for 2026-27? The RBI projects real GDP growth at 7.1% for 2026-27, with Q2 at 7.2%, Q3 at 6.9% and Q4 at 6.8%.
Q5. When will the RBI MPC minutes be released? The minutes of the October 5–7, 2026 MPC meeting will be published on October 21, 2026.
