RBI Raises Repo Rate to 5.5%, Loan EMIs May Rise

The Reserve Bank of India (RBI) on Wednesday raised the benchmark repo rate by 25 basis points to 5.5 per cent, marking the central bank’s first rate hike in nearly four years. The decision is expected to increase borrowing costs for consumers and could push up EMIs on home, personal and other floating-rate loans.

The decision was taken by the six-member Monetary Policy Committee (MPC) unanimously after its three-day meeting held from October 5 to 7. Along with the rate hike, the MPC changed its policy stance from “neutral” to “calibrated tightening”, signalling a stronger focus on controlling inflation.

RBI Governor Sanjay Malhotra said the Indian economy remained resilient despite significant global uncertainties. However, he warned that the inflation outlook was no longer as favourable as it had been last year.

According to the RBI, headline consumer price inflation is expected to average around 5.8 per cent over the next three quarters, while core inflation is projected at 4.4 per cent for the current financial year.

The central bank also highlighted several risks to the economy, including geopolitical tensions, elevated global commodity prices, trade-related uncertainties and tighter global financial conditions.

Despite these concerns, the RBI raised its real GDP growth forecast for the current year to 7.1 per cent, an upward revision of 40 basis points. Growth is projected at 7.2 per cent in the second quarter, 6.9 per cent in the third quarter and 6.8 per cent in the fourth quarter.

India’s economy grew 7.8 per cent in the first quarter, supported by strong private consumption and investment. Investment activity rose by nearly 12 per cent, while net exports also contributed positively to growth.

The latest rate increase is the first since February 2023, when the RBI raised the repo rate by 25 basis points to 6.5 per cent. The central bank subsequently maintained rates through 2023-24 before beginning a rate-cut cycle in 2025.

The RBI’s latest move comes amid a rise in retail inflation. CPI-based inflation increased to 4.82 per cent in August from 4.45 per cent in July.

For borrowers, the rate hike could mean higher monthly repayments if banks and financial institutions pass on the increase to customers. Home loan borrowers with floating interest rates are likely to feel the impact most directly.

The government has mandated the RBI to maintain retail inflation at 4 per cent, with a tolerance range of 2 per cent on either side.