RBI Repo Rate Hike: Inflation continues to weigh heavily on household finances, with no apparent respite. In October, retail inflation in India exceeded 6 percent. This increase has raised the likelihood that the Reserve Bank of India’s Monetary Policy Committee will opt for another 0.25% (25 basis points) hike in the repo rate at the upcoming December meeting.
RBI Repo Rate Hike
Many prominent economists anticipate the central bank will move to raise interest rates in December, and a few are even forecasting an additional increase in February 2027. Deepti Deshpande, principal economist at Crisil, has stated that the RBI is expected to maintain a strict policy stance, making a 25 basis point hike in December very much on the table.
For nine straight months, inflation has climbed beyond the RBI’s intended range. In October, the country’s retail inflation reached 6.09 percent, exceeding the RBI’s upper limit of 6 percent. Food prices have spiked sharply, putting further strain on families’ budgets. Headline inflation has now been on the rise for nine consecutive months.
October saw the RBI lift interest rates for the first time in three years, bringing the repo rate up to 5.5 percent. The central bank also shifted its outlook from “neutral” to “calibrated tightening,” signalling that more rate increases could follow. RBI Governor Sanjay Malhotra has made it clear there is no possibility of rate cuts in the foreseeable future; at best, rates will remain unchanged, but more likely, they will rise.
Food inflation climbs to 8.94%
The Consumer Food Price Index (CFPI) reported that food inflation increased from 7.74 percent in September to 8.94 percent in October. It is not only food that is seeing high inflation; 19 out of 43 CPI subgroups recorded inflation rates of 4 percent or higher. While the RBI had earlier forecast inflation at 6 percent for the third quarter (Q3) of the current financial year and 5.4 percent in the fourth quarter (Q4 FY27), the actual figure for October has already exceeded the Q3 prediction.
Why is inflation not subsiding even though crude oil has become cheaper?
Brent crude oil prices, which were highly volatile during the second quarter, have dropped below $110 to around $93 per barrel. Nevertheless, economists caution that an immediate reduction in inflation is unlikely: As per experts, “Crude oil prices have declined in light of hopes for peace in the Middle East, inflation will not drop straight away, as the lingering impact of previous increases continues to be felt.”
Possible further rate hikes in February 2027 after December
A number of economists suggest that interest rates could see further increases after December. Madhavi Arora, chief economist at Emkay Global, observes that although softer crude prices and foreign portfolio investment (FPI) inflows have offered some relief for India’s markets and the rupee, inflationary pressures remain strong. Her forecast anticipates a total rise of 75 basis points in this cycle, with 25 bps hikes in both December 2026 and February 2027.
Additionally, economists point out that if inflation is chiefly driven by supply-side issues, the RBI will have to consider the effect on economic growth before proceeding with additional policy tightening.