- Decision
- Raise
- Rate change
- 25 bps
- policy repo rate
- 5.5%
The Reserve Bank of India’s Monetary Policy Committee (MPC) unanimously raised the policy repo rate by 25 basis points to 5.50% and shifted to a calibrated-tightening stance, citing a less benign inflation outlook, widening price pressures and resilient, broad-based growth, although two members preferred a neutral stance. The rate had been cut 25 basis points to 5.25% in December 2025 and held there through August 2026. The standing deposit facility rate rose to 5.25%, while the marginal standing facility rate and Bank Rate increased to 5.75%. Consumer price index inflation rose to 4.8% in August and is projected at 5.2% in 2026-27, while real GDP growth is forecast at 7.1% after stronger-than-expected first-quarter growth, with robust credit flows supporting investment but strong monetary and credit growth posing inflation risks. Globally, renewed conflict in West Asia and volatile crude prices have coincided with hawkish policy shifts, tighter financial conditions and record-high bond yields. The MPC said rate cuts are off the table in the near term and the next action will be either a hike or a pause, depending particularly on underlying inflation, the broadening of price pressures and second-round effects.
Rate evolution
From June 2025 to October 2026, the Reserve Bank of India first lowered the policy repo rate by 75 basis points from 6.00 per cent to 5.25 per cent, front-loading a 50 basis point cut in June, pausing through October, easing again in December and holding from February through August, before raising it by 25 basis points to 5.50 per cent in October. The June move reflected sharply softer CPI inflation, a revised-down outlook seen durably aligned with the 4 per cent target and likely to undershoot it marginally, and growth below aspirations in a challenging global environment, after which the Monetary Policy Committee shifted the stance to neutral, while pauses through October reflected limited policy space, core inflation around 4 per cent, expected base-effect increases in headline inflation, the need to assess transmission of earlier cuts and fiscal measures, and tariff, trade and geopolitical uncertainty even as food-price disinflation, Goods and Services Tax rate rationalisation and favourable monsoon conditions made headline inflation more benign.
The Reserve Bank of India cut the policy repo rate by 25 basis points in December as exceptionally benign food prices and subdued underlying inflation gave room to support growth, but held it at 5.25 per cent in February, judging the level appropriate amid resilient domestic growth and an inflation outlook still near target, while flagging external headwinds and commodity-price, weather and geopolitical risks. In April, the committee left the policy repo rate unchanged and maintained the neutral stance as contained headline inflation and muted core pressures were offset by rising energy, weather, supply-chain and second-round inflation risks from the West Asia conflict, and it held again in June as the conflict continued, domestic demand remained resilient and higher fuel and input costs, a sub-normal south-west monsoon forecast and El Niño risks warranted greater clarity. At its August 3 to 5 meeting, the committee unanimously kept the policy repo rate at 5.25 per cent and retained the neutral stance, noting that headline CPI inflation had moved above target mainly because of food and fuel without becoming broad-based, while core inflation excluding precious metals remained benign and growth stayed resilient, but uncertainty over the south-west monsoon, El Niño, geopolitics and global trade policy required more clarity on inflation’s path and composition. At its October 5 to 7 meeting, the committee unanimously raised the policy repo rate by 25 basis points to 5.50 per cent and changed the stance to calibrated tightening, with two members preferring to retain neutral, as headline CPI inflation was expected to average almost 5.8 per cent over the next three quarters, core inflation was projected at 4.4 per cent in 2026-27, and some evidence of broader price pressures emerged alongside strong, broad-based economic momentum.