RBI MPC begins 3-day meeting today amid expectations of first rate hike since 2023

The Reserve Bank of India's Monetary Policy Committee (MPC) commenced a three-day meeting on Monday, with anticipations of the central bank's first interest rate increase since 2023. The RBI has maintained the repo rate at 5.25% for four successive policy sessions after reducing rates by a total of 125 basis points in 2025. However, growing concerns over inflation and high crude oil prices have bolstered expectations that the central bank may adopt a more stringent monetary policy stance.

Brent crude oil currently stands at approximately USD 101.26 per barrel, while crude oil prices are around USD 89.98 per barrel. The RBI's policy decision is scheduled for Wednesday, October 7. Market participants largely anticipate a 25 basis point rate hike during this session.

Several analysts have predicted a 25 basis point increase in the repo rate, followed by further hikes during the rest of FY27, potentially pushing the rate to between 5.75% and 6.0%. Factors that the RBI may consider during its October meeting include the US Federal Reserve's recent 25-basis-point rate hike, India's stable growth outlook, persistent inflation as indicated by both wholesale and consumer price indices, and sustained growth in the money supply (M3).

In its previous August meeting, the RBI's Monetary Policy Committee had kept the benchmark repo rate unchanged at 5.25% and maintained a neutral stance, waiting for clearer inflation data amid uncertainties surrounding the southwest monsoon, El Nino, geopolitical tensions, and global trade policies. RBI Governor Sanjay Malhotra mentioned that headline inflation was anticipated to rise, primarily due to supply-side pressures from food and fuel, while core inflation was expected to moderate after peaking in the third quarter.

He further suggested that the Monetary Policy Committee would require more information regarding the trajectory and composition of inflation before taking any further action.

SBI Research predicts that consumer price inflation could surpass 6.5% in the forthcoming months, which would warrant a policy buffer against mounting inflation risks. They believe that CPI inflation might exceed 6.5% before falling below 6% in early 2027, suggesting that the RBI should consider a 25-basis point hike during the October and December Monetary Policy Committee meetings.