On 7 October 2026, the Reserve Bank of India increased its repo rate to 5.5%, an increase of 25 basis points. This was its first hike since February 2023 after a total of 125 bps cuts during year 2025, nor have there been any changes in the repo rate in the last four meetings.
According to Governor Sanjay Malhotra, the Monetary Policy Committee voted unanimously for this hike, though a 50 bps hike was on the table. As for the change of stance, it passed with a vote of 4-2.
| Before | After | |
|---|---|---|
| Repo rate | 5.25% | 5.50% |
| Policy stance | Neutral | Calibrated tightening |
| FY27 inflation forecast | 5.0% | 5.2% |
| FY27 GDP growth forecast | 6.7% | 7.1% |
Inflation has taken a turn for the worse. In August, inflation based on CPI climbed to 4.8% from 4.5% in July, while core inflation excluding food and fuel rose to 4.2%. Partially to blame for this rise in inflation are the higher imports. This is due to the fact that crude is more expensive and the rupee was trading near 96.45 to the US dollar on policy announcement day making everything imported more expensive. With a growth rate of around 7.1%, the MPC believes that the economy can withstand a small increase.
The repo rate is the rate charged by banks to borrow money in the short-run from the Reserve Bank of India. Therefore, with the repo rate going up the cost of borrowing will also increase, the availability of credit will reduce and demand will slow down accordingly.
Whether your EMI moves depends on what your loan is benchmarked to.
Assuming the bank passes on the full 25 bps, here is what it looks like on a typical loan:
| Loan | Rate | EMI |
|---|---|---|
| ₹50 lakh, 20 years | 8.50% | ₹ 43,391 |
| ₹50 lakh, 20 years | 8.75% | ₹44,186 |
That is about ₹795 a month, or roughly ₹1.9 lakh over the full term. Many banks stretch the tenure instead of raising the EMI. Monthly outgo stays flat, but total interest goes up, so check which route your bank has taken. Floating-rate car and personal loans will follow the same pattern, which may take some shine off festive-season borrowing.
Deposit rates typically increase following a repo hike, however, the same occurs after some time and not often fully by 25 bps.
If you depend on income from interest, wait for at least a few weeks before renewing your maturing FD and compare the rate cards from different banks.
By diversifying your investments among multiple tenures (laddering), a part of the money can be repriced in case of continuous rate increases.
NRE deposit rates follow the domestic FD rates, which should also record some increase. FCNR (B) deposits are done in foreign currency, meaning that their interest rate is a global benchmark, and not influenced by the repo rate.
One of its advantages is protection against the devaluation of Indian rupee.
A higher repo rate alongside a weak rupee shifts the numbers for anyone moving money in or out of India.
Rate cycles also tend to prompt restructuring, such as refinancing foreign loans or changing deal terms. Each step has its own filing requirements, and missed deadlines are a common source of FEMA compliance trouble.
Markets seemed unfazed by the development. After dropping to an intraday low, Sensex regained almost 300 points, bank stocks rallied, and the yield on the 10-year government bonds increased by about 6 basis points.
News of one meeting should not stop from doing an equity SIP. It would be a different case when it comes to debt funds: with rising yields the NAV of long-term funds declines in the short term, so it would be wise to choose the duration of the fund in accordance with the planned investment horizon.