RBI hikes repo rate to 5.5%, signaling calibrated tightening

On October 7, the Reserve Bank of India’s Monetary Policy Committee raised the repo rate by 25 basis points to 5.5%, ending its rate‑cutting spree and marking the first increase since February 2023. The move lifted the standing deposit facility rate to 5.25% and the marginal standing facility and bank rates to 5.75%, signaling a calibrated tightening stance.

The RBI’s decision was driven by a forecast of average headline inflation of 5.8% for the remaining three quarters and real GDP growth of 7.1%. Food inflation spiked to 4.82% in August, while crude oil hovered around $100 a barrel, adding to the cost burden of an oil‑importing country. Global central banks, including the US Fed, ECB, and BoJ, have tightened in recent weeks, and the Bank of England has kept rates steady but warned of further tightening.

Borrowers will feel the pinch soon, as loans pegged to the repo rate will become more expensive in a month or two, adding about Rs 800 to the monthly EMI for a Rs 50 lakh, 20‑year home loan. Fixed deposit rates should rise steadily in the coming quarters, and bond yields and rate‑sensitive stocks such as banks, NBFCs, real estate, and autos will react to the news. The RBI’s guidance on future measures will be as important as the rate hike itself.

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