RBI Policy
MPC seen hiking rates by 25 basis points Wed; first time in over 3 years
This story was originally published at 21:33 IST on 1 October 2026
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By Shweta and Pratiksha
NEW DELHI – The Reserve Bank of India's Monetary Policy Committee is expected to raise the policy repo rate for the first time in over three years on Wednesday as price pressures show signs of broadening. Fifteen of the 19 economists and market participants polled by Informist said they expect the panel to hike the repo rate by 25 basis points to 5.50%.
The remaining four expect the rate-setting panel to keep the repo rate unchanged at this meeting, but anticipate a rate hike in December. The repo rate was last raised in February 2023. Twelve economists expect the Monetary Policy Committee's policy stance to remain 'neutral', while two expect a shift to 'withdrawal of accommodation'.
Economists and market participants have changed their view on interest rates over the last two months as inflation has risen amid pressures from the war in West Asia, which is now in its seventh month. "We now expect a first rate hike by the MPC on Oct. 7 as domestic inflation trajectory sees upside risks from higher global oil prices while growth has stayed remarkably resilient," Barclays said in a report.
In August, the committee left the repo rate unchanged, saying the impact of supply-side disruptions had not yet spilled over meaningfully into the wider CPI inflation basket. India's retail inflation rose to a 20-month high of 4.82% in August, driven by higher food, transport, and restaurant services costs amid the ongoing war in West Asia.
Most poll respondents expect the RBI to revise its CPI inflation projection for 2026-27 (Apr-Mar) upwards by 10-20 bps. In August, the central bank projected CPI inflation for FY27 at 5.0%. The RBI sees CPI inflation rising to 5.9% in the December quarter, near the upper bound of its 2-6% tolerance band, with 4% as the medium-term target.
"The combination of a firm domestic growth-inflation mix and tighter global financial conditions warrants an earlier start of policy rate hikes," economists at Morgan Stanley said in a note. They view the rate-hike cycle primarily as "policy normalisation rather than disruptive tightening, aimed at reanchoring real rates, containing second-round inflation risks, preserving inflation expectations, and supporting external stability."
India's GDP grew faster than expected, at 7.8% in the June quarter, which is also likely to give the central bank room to focus on inflation and raise rates, poll respondents said. "Limited pass-through from higher input costs has so far contained the drag from the energy shock, and a likely positive output gap by Q2 2026 gives the central bank room to prioritise inflation while growth remains firm," ANZ Banking Research said in a note.
The RBI in August raised its GDP growth forecast for the current financial year by 10 bps to 6.7%. However, following the stronger-than-expected Apr-Jun GDP print, economists expect the RBI to revise its GDP growth forecast upwards by 20-30 bps.
On the liquidity front, most economists expect the RBI to continue using the tools at its disposal, such as variable rate reverse repo operations, open market operation sales and sell/buy swaps, to absorb excess liquidity and keep liquidity conditions consistent with its neutral stance. They expect the central bank to refrain from drastic or more permanent measures such as a hike in the cash reserve ratio.
The RBI sold gilts worth INR 1 trillion through open market operations in the second half of September, its first bond-sale auctions in five years. It also conducted dollar-rupee sell/buy swaps in the foreign exchange market. The central bank likely absorbed durable liquidity as its special schemes to attract foreign capital were more successful than expected, resulting in a surplus of rupee liquidity in the domestic financial system. The schemes drew $144 billion of inflows between Jun. 8 and Sept. 18. Durable liquidity rose to a record high of INR 13.94 trillion as of Sept. 15.
Economists also expect the monetary policy statement to be more hawkish this time and likely to pave the way for another 25-bps hike at the December policy meeting.
The following are the expectations of respondents from the Oct. 5–7 meeting of the Monetary Policy Committee:
| Organisation | October Meet Expectation | Stance |
| ANZ Research | 25 bps rate hike | - |
| Bank of Baroda | Status quo | Neutral |
| Barclays | 25 bps rate hike | Neutral |
| BofA Global Research | 25 bps rate hike | Neutral |
| CareEdge Ratings | 25 bps rate hike | Neutral |
| Deutsche Bank AG | 25 bps rate hike | Neutral |
| Edelweiss Mutual Fund | 25 bps rate hike | -- |
| ICRA | 25 bps rate hike | Withdrawal of accommodation |
| Karur Vysya Bank | 25 bps rate hike | Neutral |
| Kotak Mahindra Bank | 25 bps rate hike | -- |
| Morgan Stanley | 25 bps rate hike | Neutral |
| Motilal Oswal | 25 bps rate hike | -- |
| Nomura | 25 bps rate hike | Neutral |
| Quantum AMC | Status quo | Neutral |
| S&P Global | 25 bps rate hike | -- |
| Standard Chartered | 25 bps rate hike | Neutral |
| STCI Primary Dealership | Status quo | Neutral |
| Sunidhi Securities | Status quo | Withdrawal of accommodation |
| YES Bank | 25 bps rate hike | Neutral |
End
Edited by Saji George Titus
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