New Delhi (Gurpreet Singh): The Reserve Bank of India raised its benchmark repo rate by 25 basis points to 5.5 per cent on Wednesday, implementing its first borrowing cost increase in nearly four years as inflationary pressures mount against the backdrop of steady domestic expansion. Following the conclusion of its three-day bi-monthly review, the six-member Monetary Policy Committee voted to lift the policy rate from 5.25 per cent and adjusted its official stance from neutral to calibrated tightening. The decision directly impacts floating-rate retail borrowing, signalling an uptick in equated monthly instalments on home and personal loans while aiming to rein in consumer price pressures.
Announcing the monetary policy resolution, RBI Governor Sanjay Malhotra observed that external headwinds and volatile geopolitical developments continue to present significant hurdles. Nevertheless, domestic momentum has displayed resilience, with gross domestic product expanding by 7.8 per cent in the first quarter. The central bank subsequently revised its full-year real GDP growth projection upward by 40 basis points to 7.1 per cent. Quarter-wise projections place second-quarter growth at 7.2 per cent, easing to 6.9 per cent in the third quarter and 6.8 per cent in the final quarter of the financial year.
Despite robust growth indicators, the committee underscored a deteriorating inflation outlook compared to the previous year. Headline consumer price inflation is forecast to hover around 5.8 per cent over the next three quarters, influenced by rising international commodity prices, supply chain friction, and energy costs. Retail inflation had earlier moved up to 4.82 per cent in August from 4.45 per cent in July. With core inflation projected at 4.4 per cent for the fiscal year, the central bank determined that a calibrated tightening was required to keep headline numbers within the mandated four per cent target band.
The latest action represents the central bank’s first rate increase since February 2023, when the repo rate reached 6.50 per cent. After holding borrowing costs unchanged through 2023 and 2024, policymakers initiated an easing cycle during 2025 before pausing in early 2026. With the fresh adjustment, the standing deposit facility rate has risen to 5.25 per cent, while both the marginal standing facility rate and the bank rate have shifted to 5.75 per cent, solidifying a tighter monetary posture for the months ahead.
