Reserve Bank of India Expected to Raise Rates for the First Time Since 2023 as Inflation Stays Above Target

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) began a three-day meeting on Monday. Governor Sanjay Malhotra will announce its decision on October 7. Nine of 10 economists surveyed by Mint expect a 25-basis-point (0.25 percentage point) increase in the repo rate, the rate at which the central bank lends to banks, to 5.50%. Only one expects a pause. A Reuters poll taken from September 18 to 28 showed less agreement, with nearly 60% of economists expecting the increase.

The RBI last raised rates in February 2023. Retail inflation measured by the consumer price index reached 4.82% in August, above the 4% medium-term target for a third straight month. Business Standard cited geopolitical tension as an added source of pressure on the rupee. Higher fuel import costs since the Gulf war began have widened India's oil bill.

Lenders argue that credit growth will continue regardless. A separate Mint analysis argues that strong growth, ample liquidity and structural demand mean the credit upcycle can withstand tighter policy in the short run. The analysis cites growth in banks' foreign-currency non-resident deposits, meaning deposits in foreign currency held by account holders living abroad, as one source of funding. The equity market has already started to adjust. The Economic Times reported that seven Nifty200 stocks closed below their 200-day moving averages on October 1. The Nifty200 is a broad index of Indian companies, and a 200-day moving average is the average closing price over the past 200 trading days.