RBI May Raise Rates After Four Years

Most economists polled expect a 25-basis-point repo hike as inflation stays above the RBI’s 4% target.

India’s central bank is facing growing expectations that it will begin raising interest rates again as inflation broadens while economic growth remains resilient. A poll found that nearly 60% of economists expected the Reserve Bank of India to increase the benchmark repo rate by 25 basis points at its October policy meeting. If delivered, it would be the first RBI rate hike in nearly four years, reversing part of the easing cycle that began in 2025. The repo rate currently stands at 5.25%.

The pressure on the RBI has increased because consumer inflation reached 4.82% in August, remaining above the central bank’s 4% target for three consecutive months. Inflation is also becoming broader, extending beyond food and fuel. At the same time, the Indian economy has continued to show relatively strong growth, reducing the argument that higher rates would unnecessarily weaken an already fragile economy. Global monetary conditions are also shifting, with other major central banks becoming more cautious or hawkish.

A rate increase would have consequences across the Indian economy. Higher borrowing costs could make home loans, vehicle loans and corporate credit more expensive, potentially slowing demand. At the same time, tighter monetary policy can support the rupee and make Indian financial assets more attractive to international investors. The RBI must therefore balance inflation control against growth, investment and financial stability. The decision will also be watched closely because the rupee has faced pressure and Indian equities have struggled. Markets have already begun pricing in a rate increase, meaning investors will pay particular attention not only to the size of the move but also to the RBI’s future guidance. If inflation remains elevated, October could mark the beginning of a longer tightening cycle rather than a one-off adjustment.