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RBI Hikes Repo Rate to 5.5 Percent as Inflation and Oil Risks Rise
The Reserve Bank of India has raised the repo rate by 25 basis points to 5.5 percent, marking its first rate hike since February 2023. The Monetary Policy Committee also shifted its policy stance from neutral to calibrated tightening as elevated crude oil prices, rising inflation and pressure on the rupee increased risks to the inflation outlook.
By Finblage Editorial Desk
3:46 pm
7 October 2026
The Reserve Bank of India RBI has increased the benchmark repo rate by 25 basis points to 5.5 percent from 5.25 percent, marking the first rate hike since February 2023. The decision was taken by the Monetary Policy Committee as the central bank assesses rising inflation risks, elevated crude oil prices, currency pressure and tighter global financial conditions.
Alongside the rate increase, the RBI changed its monetary policy stance from neutral to calibrated tightening. The shift signals a move towards tighter monetary conditions as the central bank responds to emerging inflationary pressures and changing external conditions.
Inflation has become a key concern for policymakers. Consumer price inflation rose to 4.82 percent in August 2026, remaining above the RBI's 4 percent medium term target for the third consecutive month. Higher global crude oil prices have added to the risk of imported inflation, while pressure on the rupee could further increase the domestic cost of energy and other imported commodities.
The external environment has also become more challenging. Rising crude prices amid geopolitical tensions, elevated US Treasury yields and weakness in the rupee have increased financial market risks. Brent crude had moved to around $107 a barrel earlier in the week, while the Indian rupee crossed the 96 per US dollar level and the domestic 10 year government bond yield moved above 7.2 percent.
The rate hike follows four consecutive policy reviews in which the repo rate was maintained at 5.25 percent. The RBI had previously reduced the repo rate by a cumulative 125 basis points during 2025 before keeping policy rates unchanged through the subsequent reviews.
The central bank's decision could increase borrowing costs across the economy, including loans linked to floating interest rates. The impact will also depend on how long crude prices remain elevated and whether higher energy costs begin to broaden into core inflation and inflation expectations.
The RBI's shift to calibrated tightening also puts greater focus on the future path of interest rates. With domestic growth remaining resilient but external risks increasing, markets are likely to closely assess the central bank's guidance on inflation, crude oil prices, liquidity, currency stability and the possibility of further rate increases.
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