RBI MPC Meeting: Repo Rate Hiked 25 Bps To 5.50%, GDP Forecast Raised To 7.1%

The Reserve Bank of India raised the policy repo rate by 25 basis points to 5.50% on Wednesday, marking its first rate increase in more than three years. The decision was taken unanimously by the Monetary Policy Committee after its meeting from 5 to 7 October.

The MPC also changed its stance from neutral to calibrated tightening, signalling that the central bank is giving greater weight to inflation risks as price pressures broaden. However, the stance decision was not unanimous: two members, Nagesh Kumar and Ram Singh, favoured retaining the neutral stance.

The rate increase comes amid renewed volatility in global crude prices, tighter financial conditions and geopolitical uncertainty. The RBI said inflation and its outlook are no longer as benign as they were last year, even as the Indian economy continues to show resilience.

RBI Turns More Hawkish On Inflation

The change in stance is a significant part of Wednesday’s policy decision. The RBI said monetary policy needs to address the risk of second-round effects from supply-side shocks, including their impact on inflation expectations and pricing behaviour.

Official data showed CPI inflation rising to 4.8% in August from 4.5% in July. Core inflation increased to 4.2%, while the share of CPI items recording inflation above 4% rose to about 37%.

The RBI projected CPI inflation at 5.2% for FY27, with quarterly projections of 4.9% for Q2, 6.0% for Q3 and 5.7% for Q4. Core inflation is projected at 4.4% for the year.

Share Market, Rupee And Bonds Under Pressure

Indian equities declined ahead of the policy announcement, with the Sensex falling nearly 500 points to an intraday low of 72,591 and the Nifty 50 dropping around 0.80% to 22,600.

The rupee was trading at 96.36 per dollar before the decision, while the benchmark 2036 government bond yield had closed the previous session at 7.1928%.

Markets had largely anticipated a quarter-point increase, making the RBI’s forward guidance and policy stance important for the next phase of trading.

Global markets are also awaiting minutes from the US Federal Reserve’s September meeting for clues on the future interest-rate path. Gold prices fell 0.8% to $4,130.37 an ounce, while the US dollar index gained 0.3% in early trade.

RBI Raises FY27 GDP Forecast To 7.1%

Alongside the rate decision, the RBI raised its FY27 real GDP growth forecast by 40 basis points to 7.1%, citing the strength of domestic economic activity despite significant global headwinds. The central bank projects growth at 7.2% in Q2, 6.9% in Q3 and 6.8% in Q4.

Q1FY27 GDP growth had come in at 7.8%, supported by private consumption, investment and positive net exports. The RBI said manufacturing activity remains resilient, services activity is broad-based and domestic demand continues to hold up.

The central bank flagged prolonged geopolitical tensions, elevated commodity prices, trade frictions and tighter global financial conditions as risks to the growth outlook. It also said a deficient southwest monsoon and strong El Niño conditions could affect rural demand.

What The Repo Rate Hike Means For Home Loans

The increase will also raise borrowing costs for households with floating-rate loans. On a ₹50 lakh home loan with a 30-year tenure, a 25-basis-point increase would raise the monthly EMI by about ₹852 at a PSU bank, from ₹34,109 to ₹34,961. For a private bank, the increase would be about ₹867, taking the EMI from ₹35,821 to ₹36,688.

If the loan runs for the entire 30-year tenure, the additional interest outgo would be about ₹3.07 lakh for the PSU bank example and ₹3.12 lakh for the private-bank example.

RBI Policy Rates After The Decision

The RBI said rate cuts are off the table in the near term under the calibrated-tightening stance. Future policy action can be a rate hike or a pause, depending on growth and inflation developments, particularly the broadening of price pressures and second-round effects.

The central bank also announced interoperability among NBFC Account Aggregators, allowing customers to access and share financial information across different financial information providers through an Account Aggregator of their choice. SEBI-regulated depositories will also be facilitated to include bank deposit information in consolidated account statements. The measures are expected to be implemented by 31 December 2026.

The RBI will also constitute a Technical Consultative Committee for Financial Markets to engage with market participants on policy and operational matters covering money, government securities and foreign exchange markets, along with related derivatives and infrastructure.

The next MPC meeting is scheduled for 2 to 4 December, 2026, while the minutes of the October meeting will be released on 21 October.

Also Read - Sensex Sheds Over 400 Points, Nifty Below 22,700: Why Is The Stock Market Down Today?