RBI May Raise Repo Rate by 25 Bps to 5.50% in October as Rising Oil Prices and Inflation Add Pressure
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The RBI may consider a 25 basis point rate hike in October as inflation pressures broaden. Its policy stance could remain unchanged amid global uncertainty and surplus liquidity.
The Reserve Bank of India may raise the repo rate by 25 basis points in October, taking it to 5.50%. Broader inflationary pressures could be a factor behind the move.
The Monetary Policy Committee is scheduled to meet between 5 and 7 October. Its decision will be announced on 7 October.
According to analysts, the RBI policy stance may not change even if rates are increased, as global conditions remain volatile and uncertain.
Why Could The RBI Raise Rates In October?
Higher oil prices, stronger food inflation momentum and a pickup in core inflation are the main factors that could influence the RBI's monetary policy decision.
Brent crude is around $103 a barrel, while the India Basket is at $116 a barrel. Also, core Consumer Price Index (CPI) momentum has increased to 0.55% in August from 0.26% in July, with services inflation showing stronger momentum.
What Is Happening To Inflation Pressures?
As of August, 36.7% of items in headline CPI recorded inflation of 4% or higher, compared with 31% in June.
For core inflation, the share of items showing inflation of 4% or more increased to 20.8% from 15.1% in June. Weak monsoons and lower soil moisture and reservoir levels are potential risks for rabi sowing and food prices.
Why May The RBI Policy Stance Remain Unchanged?
It is expected that the RBI policy stance will remain unchanged even with a possible rate increase because global economic conditions remain uncertain.
Estimates suggest that the current rate-hiking cycle could be relatively short, with a total repo rate increase of around 50–75 basis points. A neutral stance would indicate that the move is more about normalising policy rates than tightening monetary policy.
Surplus liquidity remains a key consideration. The Weighted Average Call Rate (WACR) was at 5.08%, below the signalling rate of 5.25%, despite measures including Variable Rate Reverse Repo operations, open market operations and currency swaps.
The RBI could wait for liquidity conditions to tighten, but delaying the move until December could allow inflation to rise further and lead markets to price in a larger 50 basis point increase at that meeting.
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This article is for informational purposes only and should not be considered investment advice from Kotak Neo. For compliance T&C and disclaimers, Visit www.kotakneo.com/disclaimer
Vishwa has spent 10+ years across fintech and FMCG doing what most people miss, connecting the dots, catching trends before they trend, and finding the angle nobody else thought to ask about.
At Kotak Neo, she drives content strategy for neoshorts, Kotak News Desk, and Investing Guide, turning market noise into something worth reading.
When she's not decoding markets, she trades charts for canvases, chasing art, painting, and architecture across cities she's yet to explore.
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