RBI Repo Rate 2026: Why RBI MPC lifted repo rates for the first time in nearly four years in October policy

In October 2026, the Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 5.50%, marking the first increase since February 2023 and a shift from its previous rate-cut cycle. This decision was influenced by three primary factors: India's growth outperforming expectations, building inflation risks, and a challenging global interest-rate environment.

GDP expanded 7.8% in the June quarter, exceeding the RBI's forecast by 80 basis points. High-frequency indicators in July and August also signaled strong economic activity. Global institutions have been raising their FY27 growth projections for India, reflecting the resilience of domestic consumption, public investment, and manufacturing and services sectors.

Retail inflation rose to 4.82% in August, up from 4.45% in July. Economists now anticipate a sharp acceleration in inflation during the December quarter, with some projections suggesting it could reach 6.2% to 6.3%. Inflation projections had been 4.7% for the September quarter and 5.9% for the December quarter.

A stronger US dollar, rising oil prices, and geopolitical tensions have created pressure on the rupee, increased imported inflation risks, and influenced foreign portfolio flows. Despite these challenges, the RBI believes that India's economy can tolerate moderate monetary tightening without significant negative impacts on growth.