RBI MPC Begins 3 Day Meet, Rate Hike Of 25 BPS On Cards
A rate hike of 25 basis points appears most likely at this meeting that would bring the repo rate to 5.5 per cent: Reports
MUMBAI: The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) began its three-day deliberations on Monday with the outcome due on October 7.
The meeting comes at the backdrop of persistent high oil prices in the recent past ($ 90 to 110 a barrel) due to the ongoing West Asia conflict, commencement of rate hiking cycle by major central banks including the US Federal Reserve, Bank of Japan to combat entrenched inflation, spike in US yields and the rupee under pressure.
A rate hike of 25 basis points appears most likely at this meeting that would bring the repo rate to 5.5 per cent. Besides the rate call, businesses and lenders would keenly watch the RBI’s reading on inflation and whether October marks a single move or the start of a shorter cycle with a second hike in the December policy looking likely.
India's retail inflation, based on the CPI (new base), printed at 4.82 per cent up from 4.45 per cent in July, food inflation reached a high of 5.66 per cent.
A key risk pushing inflation above the RBI’s projected path is coming from the rally in oil prices. Brent has risen from $80/b to $102/barrel, well above the RBI’s FY27 crude assumptions of $95/b in June policy and $90/b in August policy.
Elevated food prices and energy pressures could push CPI inflation above 6 per cent in 3QFY27, taking inflation beyond the RBI's upper tolerance threshold. However, on the positive side, economic growth has remained resilient: Q1 FY27 GDP rose 7.8 per cent.
Economists have pointed out that the process of inflation getting generalized has already started. In Jan’26, 22 commodities explained 90 per cent of CPI’s weighted contribution. In August this number of commodities increased to 51.
A rate increase would mark a reversal in the RBI’s policy direction after rate cuts in 2025 and a prolonged pause thereafter. The RBI last raised the repo rate in February 2023, when it increased the rate by 25 basis points to 6.50 per cent.
Mandar Pitale, Head- Financial Markets, SBM Bank India said, “In forthcoming policy, MPC is expected to hike the policy rate in an act to safeguard against the adverse inflation trajectory with price pressures broadening beyond food constituents due to higher oil prices, weak monsoon and rising global commodity costs.”
“RBI’s projection on increase in core and headline inflation for FY 26-27 and assessment on the future inflation trajectory for FY 27-28 will act as a major determinant in the quantum and succession of the hikes. Considering the prevailing growth inflation dynamics; MPC is expected to deliver an aggregate 50 bp rate hike between October and December policy meeting in two stages of 25 bps each with the underlying message that starting the calibrated rate hikes proactively can minimise the need for steeper hikes in future.
Further, MPC may shift its focus on withdrawal of accommodation as a supplementary measure to ensure that inflation progressively aligns with the target,” added Pitale.