RBI MPC Raises Repo Rate to 5.50%:
The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) raised the policy repo rate by 25 basis points to 5.50%. Marking its first rate hike since February 2023, the MPC also officially shifted its policy stance to “calibrated tightening” to address persistent inflationary pressures.
- Alongside the repo rate hike to 5.50%, the Standing Deposit Facility (SDF) rate has been adjusted to 5.25%, while the Marginal Standing Facility (MSF) rate and Bank Rate stand at 5.75%.
- The RBI raised its inflation forecast for FY27 by 20 basis points to 5.2%.
- The MPC noted that headline consumer price index (CPI) inflation rose to 4.8% in August 2026, driven primarily by food and fuel costs. Core inflation was projected at 4.4% for FY27.
- Despite inflationary pressures, the RBI revised its real GDP growth projection for FY 2026–27 from 6.7% to 7.1%, reflecting resilient domestic demand and economic activity.
- ‘Calibrated Tightening’: It implies a tightening of monetary policy (raising interest rates or reducing liquidity) in a measured, step-by-step manner rather than adopting aggressive rate hikes.
- It serves as forward guidance to the market that the central bank’s next move will not be a rate cut. The RBI will carefully assess the impact of previous hikes, underlying inflation data, and second-round effects of supply shocks before deciding on further increases.
