India’s central bank lifts rates for first time in nearly four years
The RBI’s six-member monetary policy committee votes unanimously to raise the benchmark repurchase rate by 25 bps to 5.5%
India's central bank, the Reserve Bank of India (RBI), has increased interest rates for the first time in nearly four years, signaling a potential for further hikes. The Monetary Policy Committee (MPC) of the RBI unanimously voted to raise the benchmark repurchase rate by 25 basis points to 5.5%, the highest level since December 2023. This was the first hike since Sanjay Malhotra became the governor in December 2024. Most economists had predicted this move.
In a televised statement, Malhotra stated that the data showed inflation was no longer benign and that recalibrating the policy rate was becoming imperative. He added that rate cuts were off the table in the near term, and policy action could only be an increase or a pause, depending on evolving conditions. The benchmark 10-year bond yield jumped to its highest level since December 2023 after the decision, while the rupee remained largely steady at 96.40 to a dollar.
The decision to raise rates came amid rising inflation and a weakening currency. The RBI's revised stance underscores that rate cuts are not an option in the near term, and policy action can only be an increase or a pause. Foreign-exchange reserves saw a record weekly decline as the RBI intervened to prop up the currency, adding to the inflation challenge.
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