The Reserve Bank of India (RBI) on Wednesday, October 7, 2026, raised the policy repo rate by 25 basis points to 5.50% from 5.25%, marking the first increase in the benchmark policy rate since February 2023. The decision was taken by the six-member Monetary Policy Committee (MPC) amid renewed inflationary pressures, elevated crude oil prices and a challenging global economic environment.
Table of Contents
Alongside the repo rate increase, the RBI raised its projection for FY27 GDP Growth Forecast 7.1% from 6.7% earlier, an upward revision of 40 basis points. The central bank cited resilient domestic economic activity, broad-based momentum and sustained private consumption as factors supporting the growth outlook.
The MPC also changed its monetary policy stance from “neutral” to “calibrated tightening.” The rate increase was supported unanimously by all six MPC members, while four members supported the change in policy stance and two members opposed the stance change.
RBI Repo Rate Hiked to 5.50%
The MPC increased the policy repo rate by 25 basis points, taking it from 5.25% to 5.50%. The move represents the first repo rate hike since February 2023 and marks a shift in the direction of monetary policy following a period during which policy rates had remained unchanged or had previously been reduced.
Following the decision, the Standing Deposit Facility (SDF) rate stands at 5.25%, while the Marginal Standing Facility (MSF) rate and Bank Rate stand at 5.75%.
The RBI’s decision came against an inflation outlook that has become less favourable compared with the previous year. Consumer price inflation accelerated to 4.82% in August 2026, according to the policy assessment reported following the MPC meeting. The central bank also indicated that inflationary pressures had become broader, with higher energy and food prices contributing to the deterioration in the inflation outlook.
Policy Stance Shifted to Calibrated Tightening
The RBI changed its policy stance from neutral to calibrated tightening. The change indicates that the central bank is placing greater emphasis on containing emerging inflationary pressures while assessing subsequent economic and inflation developments.
RBI Governor Sanjay Malhotra stated that the inflation outlook had become less benign and that the recalibration of the policy rate was considered necessary in the prevailing circumstances. The Governor also indicated that future policy action would depend on evolving inflation and growth conditions.
The policy decision comes amid an international environment affected by elevated energy prices, geopolitical developments and volatility in global financial markets. The RBI also highlighted the impact of higher crude oil prices and weather-related factors on the domestic inflation outlook.
FY27 GDP Growth Forecast 7.1%
Despite the increase in the policy rate, the RBI raised its real GDP growth projection for FY2026-27 to 7.1% from 6.7%.
The 40-basis-point upward revision reflects the central bank’s assessment that domestic economic activity continues to remain resilient. The RBI has pointed to strong private consumption and broad-based economic momentum as important factors supporting the growth outlook.
India’s real GDP growth for the April-June quarter of FY27 was reported at 7.8%, exceeding the RBI’s earlier projection of 7%. The stronger-than-expected quarterly performance contributed to the upward revision in the full-year growth forecast.
The revised FY27 growth projection also comes against the backdrop of continued domestic demand and economic activity across sectors. The RBI’s assessment indicated that private consumption remained resilient, while manufacturing activity continued to support overall economic momentum.
Inflation Projection Revised to 5.2%
Alongside the higher growth forecast, the RBI revised its inflation projection for FY27 upward.
The central bank now expects consumer price inflation to average 5.2% in FY27, compared with its earlier projection of 5.0%. The RBI also projected core inflation at 4.4%, compared with the earlier estimate of 4.3%.
The inflation outlook has been affected by higher international crude oil prices, food-price pressures and weather-related uncertainties. The RBI indicated that headline CPI inflation could average around 5.8% over the remaining three quarters of FY27, reflecting the expected persistence of price pressures.
RBI Maintains Focus on Liquidity Management
The RBI did not announce an increase in the cash reserve ratio (CRR) along with the repo rate hike. Instead, the central bank indicated that liquidity conditions would be managed through an appropriate combination of available liquidity-management instruments.
The banking system had experienced substantial liquidity inflows following foreign-exchange swap operations undertaken by the RBI. According to information reported following the policy announcement, dollar swap operations had drawn close to $144 billion by mid-September, contributing to surplus liquidity in the financial system.
The RBI has used instruments including bond sales and foreign-exchange swaps as part of its liquidity-management operations. The Governor stated that the central bank would continue to use an appropriate mix of instruments depending on prevailing liquidity conditions.
First Repo Rate Increase Since February 2023
The October 7 decision represents the first increase in the RBI’s benchmark repo rate since February 2023. The move marks a change in the direction of monetary policy at a time when inflation risks have increased while economic growth has remained relatively strong.
The combination of a higher policy rate, an upward revision to the inflation forecast and the shift to a calibrated tightening stance indicates that the RBI’s latest monetary policy decision has placed increased emphasis on price stability while retaining a positive assessment of India’s underlying growth momentum.
At the same time, the upward revision of the FY27 real GDP growth forecast from 6.7% to 7.1% reflects the RBI’s assessment that domestic economic activity remains sufficiently resilient despite the external and inflationary pressures facing the economy.
RBI Monetary Policy: Key Decisions on October 7, 2026
| Policy Parameter | Earlier | October 7, 2026 |
|---|---|---|
| Repo Rate | 5.25% | 5.50% |
| Change in Repo Rate | — | +25 bps |
| SDF Rate | 5.00% | 5.25% |
| MSF Rate | 5.50% | 5.75% |
| Bank Rate | 5.50% | 5.75% |
| FY27 Real GDP Growth Forecast | 6.7% | 7.1% |
| FY27 CPI Inflation Forecast | 5.0% | 5.2% |
| Policy Stance | Neutral | Calibrated Tightening |
The October 2026 MPC decision therefore combines a 25-basis-point increase in the repo rate to 5.50%, a shift to calibrated tightening, an upward revision of the FY27 real GDP growth forecast to 7.1%, and an upward revision of the FY27 inflation forecast to 5.2%. The RBI’s policy statement reflects its assessment of stronger domestic economic activity alongside heightened inflationary and external risks.
Disclaimer: This article is published solely for informational and news-reporting purposes based on information available from official statements and publicly reported sources. DailyBusinessNews.in is a news-presenter website and does not provide investment, financial, legal, tax or other professional advice. Information may be subject to subsequent revisions, clarifications or updates by the concerned authorities. Readers should refer to official notifications, orders and statements issued by the relevant authorities for authoritative information. DailyBusinessNews.in does not accept responsibility for any decision, action, loss or outcome arising from reliance on this report.