RBI Raises Repo Rate to 5.50% with Updated Growth and Inflation Projections

On Wednesday, 7 October 2026, the Reserve Bank of India (RBI) announced a 25 basis point increase in its repo rate, bringing it to 5.50%. This marks the first rate hike since February 2023, when the central bank had also raised rates by 25 basis points. The decision followed a unanimous vote among the six members of the RBI's Monetary Policy Committee (MPC).

Alongside the rate increase, the MPC shifted the policy stance to "calibrated tightening" with a 4-2 vote. This change signals that the RBI does not foresee any immediate rate cuts and may either continue to raise rates or maintain them at the current level depending on future economic conditions.

RBI Governor Sanjay Malhotra highlighted inflationary pressures as a primary concern in his address. He warned of the possibility that global inflation could escalate sharply, prompting central banks worldwide to tighten monetary policies further. "The RBI's October hike acknowledges that cyclical inflation risks are no longer benign," Governor Malhotra stated. He pointed to elevated oil prices, tighter global financial conditions, and potential food inflation risks due to adverse weather as factors motivating the RBI's move to reinforce its commitment to price stability.

Economic Growth Outlook

The RBI revised its forecast for India's economic growth upward for the fiscal year 2026-27 (FY27). The central bank now expects the country's real GDP to expand by 7.1%, an increase from the 6.7% projection made during the August policy review. This upgrade reflects resilience in the Indian economy despite challenges such as high oil prices influenced by geopolitical tensions, including the US-Iran conflict.

Breaking down the quarterly outlook, the RBI projects second-quarter GDP growth at 7.2%, up from 6.4% previously estimated. For the third quarter, growth is expected to reach 6.9%, compared to the earlier 6.5%. The forecast for the fourth quarter remains steady at 6.8%. However, the bank slightly lowered its growth estimate for the first quarter of the next fiscal year (Q1FY28) to 7.1% from 7.3% forecasted in August.

Inflation Expectations

Alongside growth revisions, the RBI also increased its Consumer Price Index (CPI) inflation forecast for FY27. The inflation rate is now expected to average 5.2%, up from the 5.0% predicted in the previous policy statement. Quarterly inflation estimates were also adjusted upward: Q2 inflation is projected at 4.9% (previously 4.7%), Q3 at 6.0% (from 5.9%), and Q4 at 5.7% (from 5.5%). The central bank anticipates core inflation to hover around 4.4% for the fiscal year.

This monetary policy update comes at a time when central banks globally are grappling with persistent inflation and shifting economic dynamics. The RBI’s proactive stance signals its intent to balance economic growth with inflation control amid external uncertainties.

Market participants and policymakers will closely monitor upcoming economic data to gauge whether further rate hikes are warranted or if the central bank will pause to assess the impact of the recent adjustment. The situation remains fluid, reflecting the complex interplay of domestic growth prospects and external inflationary pressures.

Note: This is a developing story. Updates will be provided as more information becomes available.