New Delhi: The Reserve Bank of India’s Monetary Policy Committee has unanimously raised the repo rate by 25 basis points to 5.5 per cent, RBI Governor Sanjay Malhotra said.
The decision by the Monetary Policy Committee marks a shift from its August policy, when it kept the repo rate unchanged at 5.25 per cent and retained a neutral stance while seeking greater clarity on the inflation outlook and growth-inflation balance.
In his statement, RBI Governor Sanjay Malhotra said, “After a detailed assessment of the evolving macroeconomic and financial conditions, developments and the outlook, the MPC voted unanimously to increase the policy repo rate by 25 basis points”
Following the repo rate increase, the standing deposit facility (SDF) rate stands at 5.25 per cent, while the marginal standing facility (MSF) rate and Bank Rate are at 5.75 per cent. The MPC stance was changed to a calibrated tightening by a majority.
The decision comes amid rising price pressures. India's CPI inflation stood at 4.82 per cent in August, while economists and research reports have projected inflation to move above 5 per cent during FY27. Inflation is expected to peak around 5.9 per cent in the third quarter, with deficient monsoon conditions and crude oil prices around USD 100 a barrel adding to the risks.
Global financial conditions have also become less supportive. The US Federal Reserve raised its policy rate by 25 basis points in September, while US 10-year Treasury yields have remained elevated at around 5.3 per cent. The rupee was trading at 96.36 per US dollar at the time of filing this report.
Liquidity was evaluated as another key consideration. The RBI's special forex swap facility mobilised USD 132.98 billion through FCNR(B) deposits as of August 31, adding substantial liquidity to the banking system and increasing the need for calibrated absorption.
The RBI has raised its GDP growth forecast for FY27 by 40 basis points to 7.1 per cent. Malhotra said the Indian economy is expected to remain resilient, with economic activity continuing to show broad-based momentum.
However, he flagged risks from global economic uncertainty and supply chain disruptions, which could have some bearing on domestic economic activity.
Malhotra also said a weak monsoon combined with a strong El Niño could affect the upcoming Rabi season.
The MPC also shifted its policy stance from ‘calibrated tightening’ to ‘neutral’. Malhotra said the next policy action could only be a rate hike or a pause, indicating that a rate cut is unlikely in the near term given current conditions.
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The latest move is expected to set the direction for monetary policy in the coming months, with economists earlier seeing scope for cumulative tightening of up to 75 basis points and the repo rate potentially reaching around 6 per cent by the end of FY27, depending on inflation, oil prices and global financial conditions.
(With inputs from ANI & PTI)
