The Reserve Bank of India (RBI) raised its benchmark repo rate by 25 basis points to 5.5% on Wednesday, marking its first rate hike in nearly four years as inflationary pressures build despite resilient economic growth.
The MPC’s three-day meeting, being held from October 5 to 7, comes after it kept the repo rate unchanged at 5.25 per cent in August and retained a neutral stance, citing the need for greater clarity on the inflation outlook and evolving growth-inflation dynamics. The last repo rate hike was in February 2023, when the RBI raised the rate by 25 basis points to 6.50 per cent. The central bank kept the rate unchanged through 2023-24 before beginning its rate-cut cycle in 2025. The government has mandated the RBI to keep consumer price index (CPI)-based retail inflation at 4 per cent, with a tolerance band of 2 percentage points on either side. Retail inflation accelerated to 4.82 per cent in August from 4.45 per cent in July.
The six-member Monetary Policy Committee (MPC) unanimously voted to raise the policy rate and shifted its stance to “calibrated tightening” from “neutral”, signalling a greater focus on containing inflation. Most experts said a rate increase was imminent, while some felt the central bank may hold off on a hike in the upcoming review.
