After months of observation, the Reserve Bank of India’s Monetary Policy Committee (MPC) announced a 25‑basis‑point increase in the repo rate, a move aimed at curbing rising inflation.
The RBI now projects retail inflation at 4.9 % for the second quarter, up from the August forecast of 4.7 %. The trend is expected to accelerate to 6 % in the third quarter before easing to 5.7 % in the fourth. Global oil prices have again crossed $100 a barrel, and while India’s oil marketing companies have largely absorbed the rise, the higher crude cost and subsequent petrol and diesel price hikes are likely to push inflation further. A deficient monsoon is also driving up food prices, a supply‑side factor that limits the direct impact of an interest‑rate hike.
The 25‑bps increase is described as a “calibrated tightening” rather than a blunt intervention. It signals the MPC’s shift from a neutral stance and underscores the bank’s readiness to deploy all tools to keep inflation in check. The RBI also revised its 2026‑27 GDP growth forecast upward to 7.1 % from 6.7 % in August, suggesting confidence that the economy can absorb the tightening.
Higher rates may also slow the exodus of foreign portfolio investors, providing some exchange‑rate relief. The RBI’s actions have addressed inflation to the extent possible; the responsibility now shifts to the government, which can employ strategic buffers, import and export controls, anti‑hoarding measures, and open‑market operations to further tame food price pressures.
