RBI Raises Repo Rate to 5.50% in First Hike Since 2023
The Reserve Bank of India has raised its benchmark repo rate by 25 basis points to 5.50%, delivering its first rate hike since February 2023 as policymakers respond to rising inflation and resilient economic growth.
RBI Raises Repo Rate to 5.50%
The six-member Monetary Policy Committee voted unanimously to increase the repo rate from 5.25% to 5.50%.
The RBI also changed its policy stance from “neutral” to “calibrated tightening”, signalling that further rate increases remain possible if inflationary pressures persist.
Governor Sanjay Malhotra said the inflation outlook was no longer benign and pointed to evidence that price pressures were becoming more broad-based.
Inflation Concerns Drive RBI Rate Hike
Consumer inflation rose to 4.82% in August, remaining above the RBI’s 4% medium-term target for a third consecutive month.
Higher fuel and food prices have contributed to the increase, while elevated global crude oil prices and weak monsoon conditions linked to El Niño have added to inflation risks.
The RBI raised its inflation forecast for the current financial year to 5.2% from 5%.
Strong Growth Gives RBI Room to Tighten
India’s economic growth has remained robust despite global uncertainty. GDP expanded 7.8% in the April-June quarter, exceeding the central bank’s earlier expectations.
The RBI also raised its growth forecast for the current financial year to 7.1%.
Financial markets reacted immediately, with government bond yields rising after the announcement while the rupee remained broadly stable. Equity benchmarks traded lower as investors assessed the possibility of further monetary tightening.
