The Reserve Bank of India on Wednesday, 7 October 2026, raised its key lending rate by 25 basis points to 5.50 per cent, the first increase since February 2023, and signalled that further tightening is possible as inflation picks up.
What the RBI decided
The six-member Monetary Policy Committee, chaired by Governor Sanjay Malhotra, voted unanimously to lift the repo rate from 5.25 per cent. The repo rate is the rate at which the central bank lends to commercial banks, and it influences what borrowers pay on home, car and business loans.
Following the decision, the standing deposit facility rate stands at 5.25 per cent, and the marginal standing facility rate and the bank rate at 5.75 per cent, according to ETV Bharat’s report of the announcement. The committee also changed its policy stance from “neutral” to “calibrated tightening”; Business Today reported that this was decided by a majority of four to two.
Why now
Governor Malhotra pointed to rising inflation risks, global tensions and the strength of domestic demand. He said rate cuts were “off the table in the near term” and that the next move could only be a further hike or a pause.
The central bank raised its projection for consumer price inflation in 2026–27 to 5.2 per cent, with the quarterly forecasts peaking at 6.0 per cent in the October–December quarter, the top of the RBI’s tolerance band of 2 to 6 per cent.
Growth outlook
The RBI lifted its forecast for economic growth in 2026–27 to 7.1 per cent from 6.7 per cent. It expects growth of 7.2 per cent in the July–September quarter, 6.9 per cent in October–December and 6.8 per cent in January–March.
What it means for borrowers and savers
- Loans: Home and other loans linked to the repo rate are likely to become costlier as banks pass on the increase, raising monthly instalments or extending loan tenures.
- Deposits: Fixed deposit rates, which had fallen through 2025, may begin to rise.
- Markets: The rupee slipped about 10 paise to around 96.45 against the US dollar after the announcement, and shares were mixed in morning trade.
The background
The RBI cut the repo rate in steps through 2025, from 6.50 per cent to 5.25 per cent by December, as inflation fell. Wednesday’s move reverses part of that easing.
The next policy review is due in December.
Figures are as reported by ETV Bharat, Business Today and IIFL from the Governor’s statement.
Image: The Reserve Bank of India building in Mumbai (file photo). Photo by Sailko, licensed under CC BY 3.0, via Wikimedia Commons.