The three-day Monetary Policy Committee (MPC) meeting of the Reserve Bank of India (RBI) began on Monday. Against the backdrop of recent inflation acceleration, the market and economists are anticipating whether the central bank will decide to raise interest rates after an approximately four-year pause. If such a decision is made, it will be the first repo rate hike since February 2023. The meeting will run from October 5th to 7th, with results announced on October 7th.
The main topic of discussion is inflation, which continues to exceed the RBI's target of 4 percent. According to a Reuters poll, about 60 percent of economists predict a 25 basis point increase at the October meeting. If the RBI follows this forecast, the repo rate will rise from 5.25% to 5.50%. Experts believe that rising inflation and high crude oil prices may force the RBI to adopt a tougher stance.
In August 2026, retail inflation stood at 4.82%, marking the third consecutive month where inflation exceeded the RBI's 4 percent target. In addition to rising food and energy prices, there is growing concern that inflationary pressure could spread to other sectors of the economy. This is why discussions about a potential interest rate hike have intensified in market circles.
Japanese broker Nomura predicts that the RBI may raise the rate by 25 basis points in both the October and December meetings, potentially bringing the repo rate to 5.75% by the end of the year. A research report from Union Bank of India (UBI) indicates the possibility of reaching a repo rate of 6% during the financial year 27, citing inflation and global commodity prices as major risks. Bank of America (BofA) offers the most aggressive forecast, suggesting an overall increase of 100 basis points in a cycle starting in October, with a probability of reaching a repo rate of 6.25% by the first half of 2027. Similarly, Morgan Stanley believes that the RBI may be forced to raise interest rates in several stages to combat inflation, forecasting an overall increase of up to 100 basis points.
The repo rate hike has the greatest impact on floating-rate consumer loans, such as mortgages and auto loans. For example, if a client took out a mortgage loan of 50 lakh for 20 years at an 8.50% rate, and it increases to 8.75%, their monthly payment (EMI) could rise from approximately 43,400 rupees to 44,200 rupees, adding about 800 rupees to the monthly burden. With an overall increase of 100 basis points and the rate reaching 9.50%, the EMI could increase by approximately 3,200 rupees per month. However, the actual impact depends on the bank, the loan term, the interest rate reset cycle, and the customer's agreement.
Benefit for Deposit Investors
Interest rate hikes do not only affect borrowers. Generally, after rate increases, banks begin offering higher interest rates on deposits. Under these conditions, the yield on fixed deposits (FD) and other fixed-income instruments may improve. Currently, all attention is focused on the RBI's decision, which will take place on October 7th. If the central bank raises the rate, it could signal the start of a new period of expensive lending in India after almost four years, affecting both EMIs and savings.