Repo rate hike is
a necessary check

The Reserve Bank of India (RBI)’s decision to increase the repo rate by 25 basis points is not unexpected, given the developments over the past few weeks. The Monetary Policy Committee (MPC) has raised the rate to 5.5% – a unanimous call, with the Committee also delivering a 4-2 verdict favouring a shift in its monetary stance from “neutral” to “calibrated tightening”. This change in position shows that the MPC does not envisage further easing of the rate in the near term – “policy action ahead can only be a rate hike or a pause”. The latest hike is the first since February 2023. In 2025, the RBI reduced the repo rate by a cumulative 125 points and had since held it stable at 5.25%.Indian stocks tank after RBI hikes repo rate; over Rs 10 lakh crore of investors’ wealth wiped outA repo rate hike was imperative for the MPC in the face of rising inflation, a decline in agricultural output caused by a deficient southwest monsoon, and an unfavourable geopolitical environment. Inflation has remained above the bank’s comfort level of 4% in the past three months and was 4.8% in August. The RBI estimates consumer price inflation for the current financial year to increase to 5.2%. While headline inflation is expected to average around 5.8% in the next three quarters, core inflation is projected at 4.4% this financial year. The bank is committed to keeping inflation within the prescribed limits and has used the monetary tool at its disposal to counter the rising trend.Challenging geopolitical developments, primarily caused by the reescalation of the war in West Asia in September, have been cited among the key factors that contributed to the MPC’s decision. Crude prices are at a high, other commodity prices are rising, and the volatility in financial markets remains a concern. Other central banks have increased interest rates in recent weeks. The pressure on the rupee has continued. RBI Governor Sanjay Malhotra said the duration and extent of further increases in the rate would depend on the actual growth-inflation movement and outlook. The economy, as it stands now, gives RBI the room to raise the rate. Real GDP grew at 7.8% in the first quarter of FY 2026-27, and the apex bank has raised the full-year forecast from 6.7% to 7.1%. The numbers point to conditions favourable to absorbing a higher repo rate without the move causing any serious fallout. Housing loans may become dearer, and pressure may emerge on discretionary spending. But the economy can only weaken without a check on inflation.

Source: Deccan Herald