Mumbai, October 8: At the latest Monetary Policy Committee (MPC) meeting of theReserve Bank of India (RBI) headed by Governor Sanjay Malhotra, the board unanimously raised the repo rate by 25 basis points to 5.50%, its first rate hike in nearly three and a half years. This decision comes amid ongoing geopolitical tensions in West Asia showing no signs of ending, with reduced agricultural yields expected following an uneven, delayed monsoon this year. This development comes days after Malhotra warned of growing economic challenges and the need to remain resilient amid external geopolitical pressures.
Key Decisions at the MPC
The six-member Monetary Policy Committee has unanimously voted to increase the policy repo rate from 5.25% to 5.50%. With this, the RBI has adjusted its key monetary liquidity facilities and shifted its overall policy stance.
Besides the repo rate hike, the MPC has decided to:
- Revise the Standing Deposit Facility (SDF) rate to 5.25%, while the bank rate and the Marginal Standing Facility (MSF) has been raised to 5.75%.
- The RBI has decided to shift from a ‘neutral’ to a ‘caliberated tightening’ policy stance, with no further repo rate cuts expected.
- Real GDP growth for FY27 is projected at 7.1%, while Consumer Price Index (CPI) inflation is forecasted at 5.2%.
Drivers of the Rate Hike & Impact on Borrowers
The decision to resume policy tightening comes at a time when mounting cost pressures have remained consistent due to the persistent challenges in the Middle East with elevated crude oil prices and global supply chain disruptions.
Beyond that, a late monsoon has slowed seasonal crop yields, threatening food security and raising inflationary pressure.
For the common man, the policy change directly raises the monthly EMIs and borrowing costs. Floating rates for homes, cars and personal expenses are expected to rise with an increase in interest rates. Beyond that, the overall credit demand is expected to slow down or moderate due to higher interest rates, though economic growth will remain resilient enough to sustain the growth momentum.
