The Reserve Bank of India (RBI) raised its main policy interest rate on 7 October 2026, ending a long stretch of steady or falling rates. The six-member Monetary Policy Committee (MPC) increased the repo rate by 25 basis points (0.25 percentage point) to 5.50%, from 5.25%. It is the first increase since February 2023, when the rate went up to 6.50%.
The repo rate is the rate at which the RBI lends short-term money to banks. When it rises, banks' cost of funds tends to rise, and that often feeds into loan and deposit rates.
What the RBI decided
The decision came at the end of the MPC's meeting held from 5 to 7 October. Alongside the repo rate, the other policy rates moved up:
- Standing Deposit Facility (SDF) rate: 5.25%
- Marginal Standing Facility (MSF) rate and Bank Rate: 5.75%
All six members voted for the rate increase. The committee also changed its policy stance from "neutral" to "calibrated tightening". That change was passed by a 4–2 vote, with Dr. Nagesh Kumar and Prof. Ram Singh preferring to keep the stance neutral. According to the resolution, the new stance means near-term rate cuts are off the table, and the next move will be either a further increase or a pause depending on how inflation and growth evolve.
Why rates went up
The main reason is inflation. Consumer price inflation was 4.8% in August 2026, up from 4.5% in July, and above the RBI's 4% target for a third month in a row. Governor Sanjay Malhotra said inflation and its outlook are "not benign as they were last year".
Reports on the decision also pointed to higher and volatile global crude oil prices linked to renewed tension in West Asia; India's crude oil basket averaged $114–116 a barrel in September, according to The Week.
The RBI now expects:
- CPI inflation for 2026-27 at 5.2%, up from its earlier estimate of 5%. Quarterly projections are 4.9% (Q2), 6.0% (Q3) and 5.7% (Q4), and 5.6% for Q1 of 2027-28.
- Core inflation (excluding food and fuel) for 2026-27 at 4.4%, up from 4.3%.
- Real GDP growth for 2026-27 at 7.1%. The economy grew 7.8% in the April–June quarter.
What it means for loans and deposits
Most floating-rate loans from banks are now tied to an external benchmark, usually the repo rate. According to figures cited in coverage of the policy, over 68% of floating-rate rupee loans from scheduled commercial banks are linked to such external benchmarks. For these borrowers, a 25-basis-point increase in the repo rate usually passes through at the next reset date, either as a higher EMI or a longer remaining tenure, depending on the bank and the borrower's choice. Fixed-rate loans are not affected until their fixed period ends.
On the savings side, higher policy rates can lead banks to revise fixed deposit rates upward over time, though each bank sets its own rates and timing.
What comes next
The minutes of this meeting are due to be published on 21 October 2026. The next MPC meeting is scheduled for 2–4 Dec 2026.