RBI may raise key interest rate by 0.25% in October policy review

Economists and bankers expect the Reserve Bank of India to raise its repo rate by 0.25% during the monetary policy review scheduled for Wednesday, October 7, 2026. This potential move comes amid growing inflationary pressures driven by the re-escalation of the West Asia crisis and recent rate hikes by global central banks.

Rate Policy Shift

If enacted, this increase would reverse an interest rate path that saw rate cuts in 2025 followed by an extended pause. The policy repo rate currently stands at 5.25%, well below the last rate hike in February 2023 when the RBI raised it by 0.25% to 6.50% before keeping it unchanged through 2023-24. A majority of participants in a PTI poll of 16 experts expect a rate hike with a hawkish tone, while Larsen & Toubro group chief economist Sachchidanand Shukla expects the RBI to opt for status quo due to a lack of demand-led inflation.

Inflation And Growth

Experts expect the central bank to revise its fiscal year 2027 CPI inflation forecast upward, driven by crude oil prices climbing above $100 per barrel and broad-based price pressures. India's retail inflation reached an eight-month high of 4.82% in August, staying above the RBI's 4% target for three straight months. Meanwhile, experts largely expect an upward revision to India's fiscal year 2027 GDP growth forecast, supported by strong economic activity in the first half of the fiscal year.

Context

The repo rate is the interest rate at which the central bank lends money to commercial banks, and raising it typically helps cool down rising prices by making borrowing more expensive. Central banks routinely adjust these rates in response to shifting global commodity prices, currency movements, and domestic inflation metrics to maintain economic stability.