The Daily PulseGeneral
RBI lifts repo rate to 5.5% in first hike after almost four years
Reported by Imran Qureshi (Staff Writer) · Hindustan Times - India ·
Confirmed by a second source: Indian Express - India
Photo: Openverse - wikimediaWhat Happened
The Reserve Bank of India raised its benchmark repo rate by 25 basis points to 5.5% on Wednesday, marking the first increase since February 2023. The decision came at the end of the Monetary Policy Committee’s three‑day meeting from Oct 5‑7.
Reaction
RBI Governor Sanjay Malhotra said the committee voted unanimously for the hike. A PTI poll had shown most participants expecting a 25‑bp rise with a hawkish tone, though some experts thought the bank might hold. The move follows a rise in retail inflation to 4.82% in August, up from 4.45% in July, while the government’s CPI target remains 4% ± 2 points.
Context
The repo rate was 5.25% before the hike, after staying unchanged through 2023‑24. The previous hike in Feb 2023 lifted the rate to 6.5%, after which the RBI began a rate‑cut cycle slated for 2025. Higher repo rates raise banks’ borrowing costs, which usually leads to higher loan EMIs for borrowers.
ExplainerWhy this matters
What Happened
The RBI’s Monetary Policy Committee voted to lift the policy repo rate from 5.25% to 5.5% after a three‑day review.
Why It Matters
A higher repo rate makes borrowing more expensive for banks, which passes on the cost to consumers through higher loan interest rates and EMIs. This is intended to curb rising inflation, which had climbed to 4.82% in August, by slowing credit growth and reducing demand.
What Happens Next
The RBI will watch inflation trends and growth data closely. If price pressures ease, the bank may keep rates steady; if inflation stays above target, further hikes could follow. Conversely, a slowdown in growth could prompt a pause before any future cuts slated for 2025.
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