Reserve Bank Expected to Review Interest Rates Amid Rising Inflation Pressures

The Reserve Bank of India is set to announce its monetary policy decision on Wednesday after a three-day meeting of the Monetary Policy Committee started on Monday. RBI Governor Sanjay Malhotra will make the announcement at 10 am, with experts divided on whether the central bank will raise the repo rate by 25 basis points or pause for now.

Expert Views And Inflation

Dipti Deshpande, principal economist at Crisil, said inflationary pressures have increased since the previous policy meeting due to the escalating West Asia conflict affecting energy and commodity prices. Retail inflation in India rose to 4.82 per cent in August from 4.45 per cent in July. The government has mandated the RBI to keep retail inflation at 4 per cent, with a tolerance band of 2 percentage points on either side. A Goldman Sachs report noted that MPC members acknowledged food and fuel inflation could have second-round effects, bringing forward its forecast to 25 basis points repo rate hikes in October and December 2026. Conversely, Madan Sabnavis, Chief Economist at Bank of Baroda, expects the RBI to leave the repo rate unchanged on Wednesday and wait until December to see how the kharif crop fares.

Sector Impacts And Past Trends

Sunil Pareek, Executive Director at Assetz, stated that stable interest rates would benefit residential real estate and support homebuyer sentiment ahead of the festive season. The policy repo rate currently stands at 5.25 per cent. The central bank last raised the repo rate in February 2023 by 0.25 percentage points to 6.50 per cent, before cutting rates four times in 2025 by a total of 125 basis points and keeping them unchanged since.

Context

The Reserve Bank of India uses the repo rate as its main tool to control borrowing costs and manage inflation across the country. Central banks typically adjust interest rates in response to shifting global commodity prices, domestic food supply changes, and broader economic growth trends.