RBI raises repo rate to 5.5%, Governor signals no relaxation soon

New Delhi, Oct 7 (UNI) The Reserve Bank of India (RBI) on Wednesday raised the benchmark repo rate by 25 basis points to 5.5 per cent, up from 5.25 per cent, as its Monetary Policy Committee (MPC) shifted its policy stance towards tighter monetary conditions.

The decision was taken unanimously at the MPC meeting held from October 5 to 7. Along with the rate hike, the central bank changed its policy stance from "neutral" to "calibrated tightening." Following the decision, the Standing Deposit Facility (SDF) rate was set at 5.25 per cent, while the Marginal Standing Facility (MSF) rate and the bank rate were raised to 5.75 per cent.

RBI Governor Sanjay Malhotra indicated that a rate reduction was unlikely in the immediate future. He said the next policy action would depend on evolving economic conditions, leaving the possibility of either another rate increase or a pause. RBI maintained a positive assessment of economic activity, with continued momentum in the services sector and relatively stable employment conditions expected to support urban consumption. However, the RBI flagged risks to the rural economy from a potentially weak south-west monsoon and strong El Niño conditions. It said adequate foodgrain reserves and government measures could help cushion the impact on agriculture and rural demand.

The RBI's quarterly real GDP growth projections are Q2: 7.2 per cent, Q3: 6.9 per cent, Q4: 6.8 per cent. For the inflation outlook, RBI expects inflationary pressures to remain elevated over the coming quarters. Its quarterly inflation projections are Q2 FY27: 4.9 per cent, Q3 FY27: 6.0 per cent, Q4 FY27: 5.7 per cent. The latest policy decision marks a shift towards a more restrictive monetary policy approach as the RBI seeks to balance economic growth with inflation risks.

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