India’s central bank seems to raise rates for the first time since 2023

India’s central bank seems to have turned the corner from cheap money to tighter money. On Wednesday, October 7, India time, the Reserve Bank of India raised its benchmark repo rate, the rate at which it lends to commercial banks, by a quarter of a percentage point to 5.50%. Governor Sanjay Malhotra announced the decision in Mumbai at the end of a three-day meeting of the bank’s Monetary Policy Committee, and Reuters reports that India now joins other major central banks raising rates as oil prices driven up by the Iran war feed inflation, squeeze household budgets, and weigh on currencies.

The hike reverses a long run of easing. CNBC-TV18 reports that the RBI cut the repo rate by a cumulative 125 basis points in 2025, and The Hindu says the last cut, to 5.25%, came in December 2025, after which the bank held the rate steady through four straight reviews, including one in August. Its last increase came in February 2023, when it raised the rate by 25 basis points to 6.50%. Reuters describes Wednesday’s move as the first rise in nearly four years; The Hindu puts the gap at nearly three and a half years. By the calendar, the stretch since that February 2023 hike runs about three years and eight months.

Malhotra framed the decision around prices that keep climbing and spreading. Inflation and its outlook have lost the benign look they had last year, he said, in remarks Reuters and the Hindustan Times both carry. “Food price increases have become more broad based, along with notable spikes in sugar and onion,” he said, according to The Hindu. Consumer inflation rose to 4.82% in August from 4.45% in July, a 22-month high, CNBC-TV18 reports, and Reuters says nearly half of the consumer basket now shows inflation above 4%. The governor said headline inflation should average almost 5.8% over the next three quarters, and he told the country, as Reuters quotes him: “In this milieu, recalibrating the policy rate” has become imperative. Weak monsoon rains linked to El Niño add to the pressure, Reuters reports.

The bank raised its forecasts on both sides of the ledger. Inflation for the fiscal year that ends in March 2027 now runs at a projected 5.2%, up from 5%, and core inflation, which strips out volatile food and fuel, at 4.4%, up from 4.3%. Business Standard lists the quarterly path at 4.9% for July through September, 6% for October through December, and 5.7% for January through March. Growth looks stronger too: the RBI now projects 7.1% for the year, up from 6.7%, after the economy grew 7.8% in the April–June quarter, well above the bank’s 7% forecast, Reuters reports. “We exhibited resilience amidst global headwinds, as evident from real GDP growth of 7.8 per cent in Q1,” Malhotra said, as quoted by the Hindustan Times. That strength, Reuters notes, gives the bank room to raise borrowing costs without choking off the expansion.

The governor also pointed to risks from outside. “The MPC noted that the global context, on account of geopolitical developments, remains challenging,” he said, according to the Hindustan Times. Moneycontrol reports that he said the escalation of the West Asia conflict had weakened global sentiment and stirred market volatility, flagged lingering trade uncertainty, and said he expects global inflation to rise sharply. He saw limited evidence so far that strong demand drives prices, Reuters reports, but warned of risks “in view of strong growth in monetary and credit aggregates.”

The signal for the months ahead may matter more than the quarter point itself. The committee changed its stance from “neutral” to “calibrated tightening,” and Malhotra said cuts no longer sit on the table in the near term, so the next step will either raise rates again or hold them, according to Moneycontrol and Business Standard. He tied the length and size of the hiking cycle to actual inflation and growth, especially underlying inflation, how widely price pressures spread, and the second-round effects of the supply shock, The Hindu and Business Standard report. Reporting on the vote differs. Reuters and the Hindustan Times describe a unanimous six-member vote, and the Hindustan Times applies that to the stance change as well. Moneycontrol and CNBC-TV18 report that the hike passed unanimously but the stance change passed 4–2.

Mechanically, the hike moves the bank’s whole rate corridor. Moneycontrol reports that the standing deposit facility rate rose to 5.25% and the marginal standing facility rate and the Bank Rate to 5.75%. The RBI held back on extra steps some traders had expected, such as raising banks’ reserve requirement to drain surplus cash, Reuters reports. Dollar-swap schemes meant to support the rupee had drawn close to $144 billion by mid-September and pushed surplus liquidity in the banking system to a record 11.16 trillion rupees at the start of September, according to Reuters. “The Reserve Bank will use an appropriate mix of liquidity management tools,” Malhotra said.

Markets took the move in stride. Nearly 60% of economists in a Reuters poll expected a 25-basis-point hike. Right after the decision, Reuters reports, India’s 10-year government bond yield edged up to about 7.23%, the rupee hovered near 96.43 to the U.S. dollar, and the Nifty 50 stock index traded down 0.3% but off its lows, while the Nifty Bank index climbed 0.15% after an early 0.7% drop, a rebound Reuters ties to the absence of extra liquidity steps. Business Standard estimates that a ₹50 lakh home loan could cost about ₹817 more a month.

Economists split on how far the bank will go. “We expect another 50-75 basis point in rate hikes over the coming months,” Sakshi Gupta, an economist at HDFC Bank, told Reuters. “In the event that the West Asia conflict lingers and oil prices remain elevated, the inflation risk could increase further, necessitating a more aggressive tightening cycle.” Krishna Bhimavarapu, an Asia Pacific economist at State Street Investment Management in Bengaluru, said: “The RBI has taken a sensible first step with a 25-bps hike, our base case remains for 100 bps of cumulative tightening over this cycle.” He added: “The ultimate magnitude will depend on how the global energy shock, food inflation broader inflation dynamics and the global tightening cycle evolve in the coming quarters.”

For roughly 1.4 billion people, the change will show up in loan payments, deposit rates, and grocery bills over the coming months. The government has asked the RBI to hold consumer inflation at 4%, with a tolerance band of two percentage points either way, CNBC-TV18 notes. Wednesday’s hike shows the bank choosing to lean against rising prices early, while growth still runs strong, rather than wait to see whether the oil and monsoon shocks fade on their own.