FAQs on RBI repo rate hike: Growth forecast, inflation outlook and what it means for you

The Reserve Bank of India’s Monetary Policy Committee (MPC) on Wednesday raised the policy repo rate by 25 basis points to 5.50%, for the first time since February 2023. The unanimous hike came amid rising inflationary pressures even as the Indian economy remains resilient amid global uncertainties.The MPC also changed its stance to calibrated tightening, signalling that rate cuts are off the table in the near term. The MPC held its 63rd meeting from October 5 to 7 under the chairmanship of RBI Governor Sanjay Malhotra.Here are the key questions around the October MPC decision:What did the RBI decide?The MPC unanimously voted to increase the policy repo rate under the liquidity adjustment facility by 25 basis points to 5.50%.Following the move, the standing deposit facility (SDF) rate stands at 5.25%, while the marginal standing facility (MSF) rate and Bank Rate have been adjusted to 5.75%.The MPC also changed its policy stance to calibrated tightening. The Committee said that the global context remains challenging because of geopolitical developments, while the Indian economy has remained strong and economic momentum is broad-based.What is the RBI’s GDP forecast?Real GDP growth for 2026-27 has been projected at 7.1%.The RBI expects growth of 7.2% in Q2, 6.9% in Q3 and 6.8% in Q4. Real GDP growth for Q1:2027-28 has been projected at 7.1%.The risks to the growth outlook are evenly balanced.The apex bank said that global economic uncertainty will continue to have some bearing on domestic economic activity.Energy prices and supply chain pressures have continued, while their near-term trajectory remains uncertain amid the lingering West Asia conflict. The RBI said their adverse impact is being contained through active diversification of supply sources.The deficient south-west monsoon and strong El Niño conditions also pose risks to agriculture and rural demand. However, healthy foodgrain buffers and proactive government policy interventions are expected to mitigate the impact.What is pushing inflation higher?The FY27 inflation forecast was raised by 20 basis points to 5.2%, with all quarterly forecasts revised higher. The biggest increase was a 30-basis-point rise in the Q1 FY28 forecast to 5.6%, while the core inflation forecast was raised to 4.4%.The MPC said inflation and its outlook are “not benign as they were last year”, with supply-side pressures expected to persist due to a deficient monsoon, ongoing El Niño conditions, and high energy and other commodity prices.CPI inflation rose to 4.8% in August 2026 from 4.5% in July, mainly driven by higher food and fuel inflation, while core inflation also increased. Food price pressures became more broad-based, with notable increases in sugar and onion prices. Core inflation rose to 4.2%, while core inflation excluding precious metals increased to 2.9%.The share of items in the headline CPI basket recording inflation above 4% also steadily increased, reaching about 37% in August.The MPC expects headline CPI inflation to average almost 5.8% over the next three quarters, while core inflation is projected at 4.4% for FY27.What does ‘calibrated tightening’ mean?The change in stance signals that rate cuts are off the table in the near term.The MPC said policy action ahead can only be a rate hike or a pause, depending on evolving conditions and the outlook.The duration and extent of any rate hike cycle will depend on actual growth-inflation developments and the outlook, particularly underlying inflation, the extent to which price pressures broaden, second-round effects of supply shocks and the impact of demand impulses.What does the repo rate hike mean for home loan borrowers?Floating-rate home loan borrowers could see their borrowing costs rise if banks transmit the full 25 basis point increase to their lending rates.For example, on a Rs 50 lakh home loan for 10 years at an interest rate of 8%, the monthly EMI is around Rs 60,664. If the lending rate rises by 25 basis points to 8.25%, the EMI would increase to around Rs 61,326.That works out to an increase of about Rs 662 a month, or nearly Rs 7,944 a year.Will home loan EMIs rise?The 25 basis point repo rate increase could raise borrowing costs for floating-rate borrowers if banks transmit the full increase to their lending rates.The impact on a particular borrower would therefore depend on the transmission of the rate increase to lending rates.Middle East risks, weather conditions & more - What’s next?The RBI flagged several risks to the inflation outlook, including deficient southwest monsoon rainfall, prevailing El Niño conditions and renewed volatility in crude oil prices following the Middle East conflict. Higher energy and commodity costs could continue to feed into the economy, while rapid growth in domestic monetary and credit aggregates also adds to upside risks.RBI Governor Malhotra said available indicators made it difficult to clearly distinguish between second-round inflation effects and supply-side pressures. The RBI also identified tighter global financial conditions, US Fed rate hikes, elevated global bond yields and geopolitical instability as external risks.However, the central bank said India’s external sector remains a buffer, supported by steady capital inflows, remittances, services exports, a recovery in merchandise trade and foreign exchange reserves.The October MPC meeting minutes will be published on October 21, 2026, while the next MPC meeting is scheduled for December 2–4, 2026.You use AI every day. Now get your AI Quotient. Take the AIQ test.