The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has unanimously hiked the repo rate by 25 basis points, from 5.25% to 5.50%, on October 7, 2026. This is the first hike in nearly four years, where previously, the benchmark interest rate was raised to 6.5% in February 2023.
The hike also marks a shift in the six-member MPC’s policy, from a neutral stance to “calibrated tightening”. This implies that the central bank is moving towards a hawkish approach, where further rate hikes may be considered gradually amidst inflationary pressures and global uncertainties.
The Marginal Standing Facility (MSF) and the Standing Deposit Facility (SDF) were changed to 5.75% and 5.25% respectively.
RBI Governor Flags 4 Key Risks for Global Economy
In his televised statement from RBI headquarters, the RBI Governor Sanjay Malhotra cautioned against four challenges facing the international economy. The challenges include the conflict in West Asia, uncertainties pertaining to tariffs, elevated bond yields and instability in artificial intelligence (AI) stocks.
Governor Malhotra stated that, “West Asia conflict, tariff related uncertainties, elevated bond yields and risks of an unwieldy correction in valuation of AI stocks are keeping global economic sentiments edgy with risk-off sentiments on EMEs (emerging market economies).”
GDP and Inflation Projections Raised
In addition, the MPC increased India’s gross domestic product (GDP) projection to 7.1%. The earlier growth was estimated at 6.7% by the RBI’s MPC.
Furthermore, the MPC hiked the consumer price index (CPI)-based inflation projection from 5% to 5.2%, with both the projections revised for financial year 2026-2027 (FY27).
On these revised estimates, RBI Governor Sanjay Malhotra remarked, “In light of the available
data, it is clear that inflation and its outlook are not benign as they were last year.”