Repo rate raised by 25 basis points to 5.50 percent
India's Monetary Policy Committee unanimously raised the policy repo rate by 25 basis points to 5.50 percent on October 7. The central bank also shifted its monetary stance to calibrated tightening to counter persistent price pressures.
Stance hardens as rate cuts are ruled out
The unanimous vote lifts the standing deposit facility rate to 5.25 percent and both the marginal standing facility rate and the Bank Rate to 5.75 percent.
Headline inflation is projected to average 5.2 percent in fiscal year 2026-27, driven by volatile global crude oil prices, supply disruptions and an uneven monsoon.
Core inflation is projected at 4.4 percent, with headline price pressures expected to peak at 6.0 percent in the third quarter.
The committee explicitly ruled out near-term rate cuts, stating that future actions will consist only of hikes or pauses.
Real GDP growth for 2026-27 was revised upward by 40 basis points to 7.1 percent, reflecting broad-based industrial and services momentum.
Surplus liquidity and external resilience
System liquidity remained in surplus, averaging a daily net absorption of ₹5.9 lakh crore under the liquidity adjustment facility since August.
Bank credit expanded 18.1 percent year-on-year, led by retail and industrial borrowing.
Foreign exchange reserves reached $734.6 billion, providing 11 months of import cover.
Despite a wider merchandise trade deficit, the current account deficit stayed modest at 0.5 percent of GDP in the first quarter.
No room for monetary complacency
The rate increase pragmatically utilizes robust GDP expansion to curb imported price pressures before they generalize.
Ruling out rate cuts eliminates market ambiguity and firmly anchors inflation expectations.
Strong domestic fundamentals give policymakers the rare freedom to prioritize stability over stimulus.
Source: Governor’s Statement, October 7, 2026
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