RBI Likely to Raise the Repo Rate in October 2026 as West Asia Crisis Pushes Up Inflation
A poll of 16 economists and bankers found that most expect the Reserve Bank of India (RBI) to raise the repo rate by 0.25 percentage points at its policy review on Wednesday, 7 October 2026.
The repo rate is now 5.25%. A hike would reverse the direction of policy, which saw rate cuts in 2025 followed by a long pause. The last hike was in February 2023, when the rate went up to 6.50%.
The main reasons given are rising inflation risks from the renewed West Asia conflict, with crude oil above US$100 a barrel, and rate hikes by other central banks.
Retail inflation (CPI) rose to an eight-month high of 4.82% in August 2026, from 4.45% in July. It has stayed above the 4% target for three straight months. This is the highest reading so far in the new CPI series (base year 2024).
Experts expect the RBI to raise its inflation forecast for 2026-27 (it was 5.0% in August). Some also expect a higher growth forecast, which was 6.7%. Views differ on whether the policy stance will change from neutral.
A minority view is that the RBI may wait, since there is no clear sign yet that strong demand is driving inflation.
Monetary Policy Committee (MPC): How RBI Sets the Repo Rate
The Monetary Policy Committee (MPC) is a six-member committee that decides India's main interest rate, the repo rate. When the MPC changes this rate, borrowing across the country slowly becomes cheaper or costlier. Its legal job is to keep inflation (the general rise in prices) close to a target set by the government, while also keeping growth in mind.
The MPC meets on 7 October 2026 and must choose between holding the repo rate at 5.25% and raising it by 0.25 percentage points. A hike would be the first since February 2023. It would be aimed at stopping the oil-driven price rise from spreading to other goods.
Flexible Inflation Targeting (FIT) Framework
Flexible Inflation Targeting (FIT) is the system under which the RBI's main job is to keep retail inflation close to a number fixed by the government. In India, that target is 4%, measured by the Consumer Price Index (CPI), with a band of 2% to 6%. It is "flexible" because the RBI may also keep economic growth in mind and does not have to hit 4% exactly every month.
CPI inflation has been above the 4% target for three months and reached 4.82% in August 2026, the highest in the new 2024-base series. The RBI's own forecast for 2026-27 is 5.0%, with 5.9% expected in October to December. With inflation heading above the 5.25% repo rate, experts argue a hike is needed so that real interest rates do not turn negative.
- Current repo rate: 5.25% (cut to this level in December 2025); expected hike: 0.25 percentage points
- Last rate hike: February 2023 (to 6.50%)
- MPC policy announcement: Wednesday, 7 October 2026; PTI poll of 16 economists and bankers
- CPI inflation: 3.93% (May), 4.38% (June), 4.45% (July), 4.82% (August 2026, eight-month high)
- About 19% of the 358 CPI items had inflation above 6% in August, up from 13% in March
- RBI's August 2026 projections for 2026-27: CPI inflation 5.0% (Q2 4.7%, Q3 5.9%, Q4 5.5%); core 4.3%; GDP growth 6.7%
- Crude oil above US$100 per barrel
- Experts expect two to three rate hikes in 2026-27