RBI hikes repo rate by 25 basis points to 5.5 pc; changes stance to 'calibrated tightening'

PTI, Oct 7, 2026, Mumbai: After nearly three-and-half years, the Reserve Bank of India on Wednesday raised key benchmark policy rate by 25 basis points to 5.5 per cent in a bid to tame rising inflation amid continuing West Asia crisis.

With the rate hike, home loans, vehicle loans and corporate loans would become expensive and EMI for existing borrowers would also go up. A hike in the short-term lending rate (repo) by the RBI marks a reversal from its previous policy action.

The last repo rate hike was in February 2023, when the RBI raised the rate by 0.25 per cent to 6.50 per cent. It kept the rate unchanged through 2023-24 before beginning its rate-cut cycle in 2025.

Announcing the bi-monthly monetary policy, RBI Governor Sanjay Malhotra said the Monetary Policy Committee (MPC) unanimously decided to raise the policy repo rate by 25 basis points.

Meanwhile, retail inflation rose to 4.82 per cent in August as compared to 4.45 per cent in the previous month. MPC changed its stance to 'calibrated tightening' from 'neutral' and also underscored that rate cut is unlikely in the near term given the current conditions.

Besides, MPC must have taken into account the recent actions by central banks of developed nations especially the US Federal Reserve and the European Central Bank.

Last month, the US Fed effected a 25 basis points rate hike to rein in inflation brought on by spiralling oil prices and other factors. Prior to the Fed, the European Central Bank too raised its key interest rate by 25 basis points.

The Reserve Bank of India raised its benchmark repo rate by 25 basis points to 5.50 per cent on Wednesday, its first hike in nearly four years, while signalling that rate cuts are off the table in the near term and that further hikes could follow amid rising inflation, a weak rupee and high crude oil prices.

The six-member Monetary Policy Committee (MPC) of the RBI voted unanimously to raise the repo rate, and sprang a surprise with a shift in policy stance to "calibrated tightening" from "neutral".

The decision to change the policy stance was taken with a 4:2 majority. External members Nagesh Kumar and Ram Singh were of the view that the policy stance should be retained at neutral, the RBI said in its policy statement.

The hike in the repo rate -- the first in the tenure of Governor Sanjay Malhotra, who assumed office in December 2024 -- comes as key global central banks raise rates due to pressure from high oil prices following the West Asia crisis, weak currencies, and the impact of El Nino.

"Rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook," Malhotra said while announcing the MPC's decisions.

The Governor, however, cautioned that the timing and extent of any further tightening would depend on the evolution of inflation and growth, particularly underlying price pressures and the extent to which supply shocks become embedded in the broader economy.