The Reserve Bank of India (RBI) could raise its policy repo rate by 25 basis points at its October monetary policy review, according to a survey of economists and bankers cited by PTI.
The expectations come amid renewed concerns over inflation, higher crude oil prices, global monetary tightening and escalating tensions in West Asia. However, economists remain divided, with some expecting the central bank to maintain the existing rate while assessing whether current price pressures will persist.
The RBI's policy review is scheduled for October 7, 2026.
RBI Rate Hike Expectations Gather Momentum
The RBI's repo rate currently stands at 5.25%. The last increase came in February 2023, when the central bank raised the rate by 25 basis points to 6.50%.
After maintaining rates through 2023-24, the RBI entered a rate-cut cycle in 2025 before eventually keeping policy unchanged.
A 25-basis-point increase in October would therefore represent a significant change in the direction of monetary policy.
Several economists surveyed by PTI believe inflation risks and international developments could provide enough reason for the RBI to begin tightening policy again.
West Asia Conflict and Crude Oil Prices Add to Inflation Concerns
One of the key factors influencing the outlook is the renewed escalation of the West Asia conflict.
Higher geopolitical risks can affect global energy and commodity markets, particularly crude oil. With international oil prices moving above $100 per barrel, economists have raised concerns about the possible impact on India's fuel prices and broader inflation.
Higher fuel costs can eventually feed into transportation, manufacturing and other parts of the economy, potentially increasing overall price pressures.
Economists therefore expect the RBI may revise its inflation projections if elevated commodity prices persist.
Retail Inflation Has Moved Above the RBI's Target
India's retail inflation accelerated to 4.82% in August, compared with 4.45% in July, according to the figures cited in the report.
Consumer price inflation has remained above the RBI's 4% target for three consecutive months, rising from 3.93% in May to 4.38% in June and then 4.45% in July.
The August reading was reported as the highest under the revised CPI series based on 2024 as the reference year.
The widening nature of price pressures is another concern for policymakers. One economist cited in the survey noted that around 19% of the 358 items in the CPI basket recorded inflation above 6% in August, compared with 13% in March.
Economists Do Not Fully Agree on a Rate Hike
Despite the growing inflation concerns, the possibility of a status-quo decision remains.
Sachchidanand Shukla, group chief economist at Larsen & Toubro, expects the RBI to wait rather than immediately raise rates. His view is that there is not yet sufficient evidence of demand-driven inflation or overheating in the economy.
This difference in opinion reflects the challenge facing policymakers. A rate increase could help contain inflation expectations, but tighter monetary conditions could also affect borrowing costs and economic activity.
Experts See More Than One Hike Possible in FY27
Among economists expecting monetary tightening, several see the possibility of at least two rate increases during FY27, with some forecasting two to three hikes.
The argument for gradual normalisation is based partly on the need to maintain positive real interest rates if inflation remains elevated.
The RBI's future decisions will therefore depend heavily on how inflation develops alongside economic growth, commodity prices and global interest-rate movements.
Inflation Forecast Could Be Revised Higher
The RBI had projected FY27 CPI inflation at 5.0% in its August policy review, with quarterly projections of 4.7% for Q2, 5.9% for Q3 and 5.5% for Q4.
Several economists surveyed by PTI expect at least some upward revision to these projections.
Higher crude oil prices are one of the main reasons cited for such expectations. A sustained rise in energy costs could affect petrol and diesel prices and create wider inflationary pressure across the economy.
Growth Outlook Remains Relatively Strong
Inflation concerns have emerged even as economic activity remains comparatively resilient.
The RBI had projected real GDP growth for FY27 at 6.7%, with quarterly growth estimates of 7.0% in Q1, 6.4% in Q2, 6.5% in Q3 and 6.8% in Q4.
Several economists expect the central bank to raise its growth forecast because economic activity during the first half of the financial year has been stronger than previously anticipated.
A higher growth outlook could give the RBI additional room to focus on controlling inflation without placing the same degree of emphasis on supporting demand.
What a Rate Hike Could Mean for Borrowers and Businesses
A repo rate increase generally puts upward pressure on borrowing costs across the financial system, although the actual impact on individual loans and businesses depends on the type of lending arrangement and how banks transmit the policy change.
Companies with significant borrowing requirements may therefore need to monitor interest-rate conditions closely when planning investments, working capital requirements and financing decisions.
Businesses reviewing their financial structure and funding needs can also benefit from professional Business Advisory support when assessing how changing interest rates may affect cash flow and financing decisions.
RBI Faces a Delicate Policy Decision
The October policy review comes at a time when the RBI is balancing several competing factors: rising inflation, elevated energy prices, global monetary policy changes, geopolitical uncertainty and relatively strong domestic growth.
A 25-basis-point hike is expected by many economists surveyed by PTI, but the final decision will depend on the central bank's assessment of incoming economic data.
The policy stance and accompanying guidance will also be closely watched because they could provide clues about whether the RBI views any tightening as a one-time adjustment or the beginning of a broader shift in monetary policy.