RBI Hikes Repo Rate by 25 Bps to 5.50% as Loan EMIs Set to Rise

The Reserve Bank of India has raised its policy repo rate by 25 basis points to 5.50 per cent. The Monetary Policy Committee announced the decision during its meeting in October 2026. This marks the central bank's first interest rate increase since February 2023.

The rate hike ends nearly two years of monetary accommodation. The MPC also shifted its monetary policy stance from neutral to calibrated tightening. This move signals that further interest rate increases may follow in upcoming policy meetings.

Borrowers across India will face higher loan repayments. Banks will pass the increased funding costs to consumers. Equated monthly instalments for home, personal, and vehicle loans will increase.

Loans tied to external benchmarks and the marginal cost of funds-based lending rate will see higher borrowing charges.

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The central bank revised its economic projections alongside the rate hike. The MPC raised its FY27 gross domestic product growth forecast to 7.1 per cent from 6.7 per cent. India's GDP grew by 7.8 per cent in the first quarter of FY27, beating market expectations.

Higher consumption, strong capital investment, and rising export activity supported this economic momentum. High GST collections, solid automobile sales, and active bank credit growth also aided the decision. However, the panel raised its FY27 inflation projection to 5.2 per cent from 5.0 per cent.

RBI Governor Sanjay Malhotra noted that economic activity maintained momentum in the second quarter. noting that the policy action ahead can only be a rate hike or pause, depending on the evolving conditions, Malhotra shared. Deputy Governor Poonam Gupta also acknowledged that economic conditions for rate adjustments had developed during the year.

Consumer price index data showed headline inflation at 4.82 per cent in August. This figure remained above the medium-term 4 per cent target for three straight months. Analysts expect retail inflation to peak near 6 per cent in the third quarter.

Domestic weather disruptions added substantial pressure on food prices. Maharashtra declared drought in 265 of its 358 talukas. Similar drought risks emerged across Karnataka, Telangana, Andhra Pradesh, and Rajasthan.

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Weather experts warned that El Niño conditions could extend into 2027.

Global economic factors also prompted the policy adjustment. Crude oil prices climbed above $100 per barrel due to the West Asia conflict and the Russia-Ukraine war. Meanwhile, the US Federal Reserve raised its policy rate to a range of 3.75 to 4 per cent.

Higher US yields pushed India's 10-year benchmark bond yield up by 25 basis points to 7.21 per cent.