RBI Raises Repo Rate to 5.50% as Inflation Risks Build

The RBI's October decision marks a reversal, not simply the end of a long pause. According to Times of India Top Stories, the rate cutting phase began in February 2025. The Hindu reported that the previous increase was in February 2023, when the repo rate rose by 0.25 percentage points to 6.50%.

Expectations for renewed tightening had strengthened by late September. On September 30, Business Line - Home reported that BofA Securities expected a 25 basis point increase at the October 7 meeting and 100 basis points of increases through the first half of 2027.

On October 2, SBI economists said the balance of risks had tilted decisively towards raising the repo rate from 5.25% to 5.50%, according to Business Line - Home. A poll published by the same outlet on October 4 found that most respondents expected 50 to 75 basis points of tightening by financial year 2027.

Currency weakness added to the pressure. On October 6, Economic Times Business & Economy reported that the rupee closed at 96.42 per dollar, its weakest level in more than two months, amid foreign investor outflows and dollar demand from oil companies. The Hindu gave a slightly different provisional closing figure of 96.43.

The RBI was also stepping up efforts to absorb surplus cash. On October 6, Business Line - Home reported plans for a ₹3 lakh crore variable rate reverse repo auction. Tuesday's ₹2.50 lakh crore auction had received offers totalling ₹1,92,357 crore from banks.

By October 6, a quarter point increase was the dominant forecast. According to NDTV Top Stories, 35 of 41 economists surveyed expected the six-member Monetary Policy Committee to raise the rate to 5.50%, while six expected no change.

On October 7, the RBI delivered that increase. India Today reported a 25 basis point rise to 5.50%, and Indian Express confirmed it was the first hike since 2023.

The repo rate now stands at 5.50%. The decision moves the story from expectations of tightening to an actual rate increase. Bloomberg Economics reported that rising inflation and a weakening currency drove the change in course.

The rupee remained under pressure ahead of the announcement. Business Line - Home reported that it fell to 96.45 per dollar in early trading on October 7. That figure predates the policy decision and does not establish how the currency responded to the hike.

December is the next test of whether this becomes a sustained tightening cycle. CNBC International reported that HSBC and Goldman Sachs expect the RBI to raise rates again that month. Those are forecasts, not announced policy decisions.

The eventual scale of tightening remains open. BofA Securities' forecast of 100 basis points through the first half of 2027, reported by Business Line - Home, points to a longer sequence of increases. Further liquidity auctions will also show how aggressively the RBI continues to absorb surplus funds.