India's Monetary Policy Committee voted unanimously on Wednesday to raise the benchmark repo rate to 5.50%, its first increase since February 2023.
By the numbers: The committee lifted the repo rate 25 basis points at its 63rd meeting, held October 5 to 7 under Governor Sanjay Malhotra, and changed its stance to calibrated tightening.
- The standing deposit facility rate moves to 5.25%, and the marginal standing facility rate and the Bank Rate to 5.75%.
The big picture: India held rates steady in August. Since then the West Asia conflict re-escalated, crude turned sharply volatile, the US Federal Reserve hiked 25 basis points in September and global bond yields sit at record highs, the RBI said.
Zoom in: CPI inflation rose to 4.8% in August from 4.5% in July. Core inflation reached 4.2%, and the share of the basket running above 4% inflation climbed steadily to about 37%.
What they're saying: Inflation and its outlook are no longer as benign as last year, the committee wrote, with headline CPI expected to average almost 5.8% over the next three quarters, making recalibration of the policy rate imperative.
Yes, but: Growth is holding. Real GDP rose 7.8% in the April to June quarter, above expectations, and the RBI projects 7.1% for 2026-27 on strong private consumption and a rebound in merchandise exports.
What's next: The RBI projects CPI inflation of 5.2% for 2026-27, peaking at 6.0% in the third quarter, with a deficient southwest monsoon and strong El Nino conditions among the named risks.
Why it matters: The world's fastest-growing large economy just joined the Fed on the tightening track, which tells you how far the energy shock has traveled. Indian borrowers on floating rate loans see it in their next monthly payment.
