The Monetary Policy Committee voted unanimously for a 25-basis-point rate increase as inflation pressures broadened despite resilient economic growth. The RBI projected 7.1% GDP growth and 5.2% CPI inflation for 2026-27.
BKK Bureau, New Delhi | 21 October 2026 | 9:58 PM IST
The Reserve Bank of India’s Monetary Policy Committee unanimously raised the policy repo rate by 25 basis points to 5.50% at its October 5-7, 2026 meeting, citing a less benign inflation outlook and continued strength in domestic economic activity. The committee also changed its policy stance to calibrated tightening.
Following the decision, the standing deposit facility rate stands at 5.25%, while the marginal standing facility rate and the Bank Rate have been adjusted to 5.75%. All six MPC members voted in favour of the repo-rate increase.
Inflation risks drive policy shift
The RBI said headline consumer inflation rose to 4.8% in August 2026 from 4.5% in July. The increase was led mainly by food and fuel, but core inflation also moved higher to 4.2%. The share of items in the consumer price index basket recording inflation above 4% increased to about 37% in August.
The central bank projected CPI inflation at 5.2% for 2026-27, with quarterly projections of 4.9% in the second quarter, 6.0% in the third quarter and 5.7% in the fourth quarter. Core inflation is projected at 4.4% for the financial year. The RBI attributed the risks to deficient monsoon conditions, El Niño, elevated energy and commodity prices, and the continuing pass-through of supply-side costs.
In its assessment, the MPC said monetary policy must limit the second-round effects of supply shocks, including higher inflation expectations and changes in firms’ pricing behaviour. It noted some evidence of broader price pressures and elevated expectations, while also identifying risks from strong monetary and credit growth.
Growth outlook remains resilient
The RBI retained a positive assessment of economic activity despite global uncertainty. National Statistics Office estimates showed real GDP growth of 7.8% in the first quarter of 2026-27, supported by private consumption, fixed investment, merchandise exports, services exports and manufacturing. High-frequency indicators for July and August indicated that momentum continued into the second quarter.
Real GDP growth for 2026-27 was projected at 7.1%, comprising 7.2% growth in the second quarter, 6.9% in the third quarter and 6.8% in the fourth quarter. Growth for the first quarter of 2027-28 was projected at 7.1%. The RBI identified robust capacity utilisation, credit flows, infrastructure spending and services exports as factors supporting investment and activity.
The central bank also flagged risks from the re-escalation of the West Asia conflict, crude-oil volatility, tighter global financial conditions, high public debt and potential disruptions to agriculture and rural demand. It said diversification of supply sources and government policy interventions were helping contain some of the effects.
Members differ on policy stance
Although the rate decision was unanimous, Dr Nagesh Kumar and Professor Ram Singh preferred to retain a neutral stance. Kumar said inflation was largely supply-driven and supported the rate increase while favouring neutrality. Singh also backed the 25-basis-point hike but said a tightening stance could signal an extended rate-hike cycle and weigh on demand and investment.
The remaining four members supported both the rate increase and the shift to calibrated tightening. The RBI said this stance signals that rate cuts are not an option in the near term, while future policy action may involve a further hike or a pause depending on growth, inflation, underlying price pressures and second-round effects.
The next MPC meeting is scheduled for December 2-4, 2026.
Why it matters
The decision increases the benchmark cost of funds as the RBI responds to rising and broadening inflation pressures. At the same time, the central bank’s 7.1% growth projection indicates that it currently sees sufficient economic momentum to prioritise price stability while keeping future policy action dependent on incoming data.
Source: Reserve Bank of India
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