RBI Hikes Repo Rate by 25 Bps to 5.50%; GDP Forecast Raised to 7.1%

7 Oct 2026 , 11:41 AM

RBI MPC Meeting 2026: The Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 5.50% from 5.25%, marking the central bank’s first rate hike since February 2023.

The decision was taken unanimously by the six-member Monetary Policy Committee (MPC), headed by RBI Governor Sanjay Malhotra.

Along with the rate hike, the RBI shifted its policy stance from “neutral” to “calibrated tightening”, signalling a more cautious approach to inflation and keeping the possibility of further tightening open if price pressures intensify.

RBI Repo Rate Hike: Key Decision

The 25-basis-point hike takes the repo rate to 5.50%. The move comes against a backdrop of rising inflation concerns, higher crude oil prices, a weaker rupee and uncertainty surrounding global trade.

The RBI also raised its FY27 core inflation forecast to 4.4% from 4.3%, highlighting persistent price pressures.

The change in stance to calibrated tightening is significant for markets as it suggests that near-term rate cuts are unlikely unless inflationary pressures ease materially.

RBI Raises FY27 GDP Growth Forecast to 7.1%

Despite the tighter monetary policy stance, the RBI remains positive on India’s growth outlook.

The central bank raised its FY27 real GDP growth forecast to 7.1% from 6.7%, citing sustained momentum in manufacturing and services, strong fixed investment and continued support from private consumption and investment.

The quarterly growth projections were also revised higher.

Period	Earlier Forecast	New Forecast
FY27 GDP Growth	6.7%	7.1%
Q2 FY27	6.4%	7.2%
Q3 FY27	6.5%	6.9%
Q4 FY27	6.8%	6.8%

However, the RBI flagged several risks to growth, including weakness in non-durable goods and domestic air traffic, supply-chain disruptions, a weak monsoon and the possibility of an El Niño event.

Why Did RBI Hike Repo Rate?

The rate decision reflects growing concerns around the inflationary impact of higher energy prices and external risks.

Higher crude oil prices can feed into transportation, input and production costs, while a weaker rupee can increase the domestic cost of imported commodities.

The RBI also highlighted the West Asia conflict, global trade uncertainty and elevated bond yields as risks to the economic outlook.

The central bank additionally flagged elevated valuations in AI-related stocks as a potential source of risk to global financial sentiment.

RBI Repo Rate Hike: Impact on Loans and EMIs

The repo rate hike could increase borrowing costs for consumers if banks and other lenders pass on the higher funding costs.

Borrowers with floating-rate home loans, auto loans and personal loans could see their EMIs rise or their repayment tenure extended, depending on how lenders reset their lending rates.

The impact, however, will vary across banks and loan products based on the transmission of the policy rate change.

RBI Highlights Strong External Sector

The RBI said India’s external sector remains resilient, supported by strong services exports and robust remittance inflows.

India’s foreign exchange reserves provide around 11 months of import cover and cover approximately 94.4% of external debt, providing a buffer against external shocks.

The central bank also pointed to the India-UK trade deal and continued foreign investment interest as positive factors for the external sector.

FDI Interest Remains Strong

The RBI noted that robust gross foreign direct investment (FDI) reflects continued interest from global investors.

Measures announced in June 2026 are also expected to support capital inflows and strengthen India’s attractiveness to foreign investors.

RBI Announces New Financial Market Measures

Alongside its monetary policy decision, the RBI announced several measures relating to financial-market infrastructure and consumer access to financial information.

The central bank will establish a technical consultative committee for financial markets to engage with market participants on policy and operational matters.

It also plans to facilitate the inclusion of bank deposit information alongside securities, equity and debt holdings in consolidated account statements.

In another move, NBFC account aggregators will be made interoperable, allowing users to access financial information across different aggregators through a single onboarding process.

Stock Market Reaction to RBI MPC Decision

Indian equities showed a mixed response following the policy announcement.

At 10:54 AM, the Nifty 50 was down 0.43% at 22,678.55, while the Sensex rose 0.19% to 72,917.15.

The Nifty Bank was nearly flat at 55,209.65, gaining 0.05%.

The market reaction reflects the balancing act investors are assessing: higher interest rates and a tighter policy stance could weigh on rate-sensitive sectors, while the RBI’s upgraded growth forecast provides a positive signal for the broader economy.

RBI MPC Meeting 2026: Key Takeaways

• RBI raises repo rate 25 bps to 5.50%.
• First repo rate hike since February 2023.
• MPC decision was unanimous.
• Policy stance changes from neutral to calibrated tightening.
• FY27 GDP growth forecast raised to 7.1% from 6.7%.
• FY27 core inflation forecast raised to 4.4% from 4.3%.
• Q2 FY27 growth forecast raised to 7.2%.
• Higher borrowing costs could affect floating-rate loans and EMIs.
• RBI flags West Asia conflict, trade uncertainty and elevated bond yields as risks.
• Forex reserves provide around 11 months of import cover.
• RBI announces measures for financial-market consultation and account aggregator interoperability.
• Nifty trades lower while Sensex and Nifty Bank remain marginally positive after the policy decision.

The RBI’s latest policy marks a shift towards tighter monetary conditions even as the central bank remains constructive on India’s growth outlook. Going ahead, the trajectory of inflation, crude oil prices, the rupee and global financial conditions will be key factors determining the direction of monetary policy.

Disclaimer – The stock/s and indices mentioned in this article are discussed solely for informational and educational purposes. It should not be construed as investment advice or a recommendation to buy or sell any securities. The views and investment recommendations mentioned in the article are reported by investment experts, analysts, broking houses, rating agencies and other market professionals in their own capability and do not represent the views of Indiainfoline/IIFL Capital website or its management. Investors should conduct their own research or consult a financial advisor before making any investment decisions. Investments in securities markets are subject to market risks. Read all the related documents carefully before investing.