New Delhi: The Reserve Bank of India has raised the policy repo rate by 25 basis points to 5.50 per cent, beginning a rate-hike cycle amid rising inflation risks, elevated global yields and resilient domestic economic activity.
The decision was taken by the Monetary Policy Committee (MPC) at its latest policy review. The move marks a shift from the RBI’s August policy, when it kept the repo rate unchanged at 5.25 per cent and retained a neutral stance while seeking greater clarity on the inflation outlook and the balance between growth and inflation.
In his statement, RBI Governor Sanjay Malhotra said the MPC had unanimously decided to increase the policy repo rate by 25 basis points after a detailed assessment of evolving macroeconomic and financial conditions and the outlook.
Following the repo rate hike, the Standing Deposit Facility (SDF) rate stands at 5.25 per cent, while the Marginal Standing Facility (MSF) rate and the Bank Rate stand at 5.75 per cent.
The decision comes amid rising price pressures. India’s Consumer Price Index (CPI)-based inflation stood at 4.82 per cent in August, while economists and research reports have projected inflation to rise above 5 per cent during FY27.
Global financial condition have also become less supportive. The US Federal Reserve raised its policy rate by 25 basis points in September, while US 10-year Treasury yields have remained elevated at around 5.3 per cent.
Liquidity conditions were another key consideration for the central bank. The RBI’s special forex swap facility had mobilised USD 132.98 billion through FCNR(B) deposits as of August 31, adding substantial liquidity to the banking system and increasing the need for calibrated liquidity absorption.
At the same time, domestic economic activity has remained resilient. India’s economy grew 7.8 per cent in the first quarter of FY27, while high-frequency indicators pointed to continued strength in domestic demand, manufacturing and services.
[DD News]