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

Nine of 10 economists surveyed by Mint expect a 25-basis-point increase to 5.50% on October 7. A Reuters poll found less agreement, and banks argue that credit growth can absorb the increase.

- Published: 2026-10-05T05:06:07.059Z
- Canonical: https://polylog.news/2026-10-05/reserve-bank-of-india-expected-to-raise-rates-for-the-first
- Publisher: Polylog (Global desk)
- Section: macro
- Sources: [Mint (Economy)](https://www.livemint.com/economy/rbi-monetary-policy-repo-rate-indian-economy-11791107863686.html), [Mint (Economy)](https://www.livemint.com/economy/india-credit-growth-rate-hike-rbi-monetary-policy-bank-lending-bank-credit-fcnr-b-deposits-financial-deepening-11791139917638.html), [Business Standard](https://www.business-standard.com/amp/finance/news/rbi-mpc-meeting-october-2026-monetary-policy-repo-rate-hike-retail-inflation-126100200188_1.html)

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](https://www.business-standard.com/amp/finance/news/rbi-mpc-meeting-october-2026-monetary-policy-repo-rate-hike-retail-inflation-126100200188_1.html). 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%](https://www.livemint.com/economy/rbi-monetary-policy-repo-rate-indian-economy-11791107863686.html). 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](https://www.business-standard.com/amp/finance/news/rbi-mpc-meeting-october-2026-monetary-policy-repo-rate-hike-retail-inflation-126100200188_1.html).

The RBI last raised rates in February 2023. Retail inflation measured by the consumer price index reached [4.82% in August](https://www.business-standard.com/amp/finance/news/rbi-mpc-meeting-october-2026-monetary-policy-repo-rate-hike-retail-inflation-126100200188_1.html), 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](https://www.livemint.com/economy/india-credit-growth-rate-hike-rbi-monetary-policy-bank-lending-bank-credit-fcnr-b-deposits-financial-deepening-11791139917638.html) 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](https://m.economictimes.com/markets/stocks/news/negative-breakout-these-7-stocks-cross-below-their-200-dmas/downside-ahead/slideshow/134683932.cms) 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.

## What this means

The RBI is raising rates because an external price shock in imported fuel is passing into domestic inflation and the rupee. Indian borrowers, rate-sensitive sectors such as real estate and autos, and holders of long Indian government bonds are exposed through higher funding costs. Rupee holders benefit if the increase slows capital outflows. Strong credit growth during the tightening suggests that earlier easy policy financed lending that must now be repriced. The consensus expects one increase followed by a pause. Fuel-driven inflation does not respond quickly to rate increases, so the RBI risks repeating 2013. That year, it raised rates to defend the rupee during the "taper tantrum," the market sell-off that followed the Federal Reserve's signal that it would slow its bond purchases, and it had to keep policy tight for more than a year. The likelier outcome is a 25-basis-point increase on Wednesday, with guidance that leaves December open. A second increase by early 2027 becomes likely if Brent stays near $100. A sustained fall in crude below the levels of the past month would allow the RBI to stop after one move.

## What to watch

- The vote split and the wording of the policy statement on Wednesday. A unanimous vote and a hawkish statement would point to a series of increases rather than a single one.
- The rupee's reaction after the decision. A weaker rupee despite the increase would show that capital outflows driven by oil are stronger than higher interest rates can offset.
- The September inflation data, due mid-month. Another month above 4.8% would make a December increase the base case.