RBI Raises Repo Rate by 25 Bps to 5.50 Per Cent Amid Global Economic Pressures

The six-member Monetary Policy Committee (MPC), headed by RBI Governor Sanjay Malhotra, took the decision after a three-day review of domestic and international economic conditions.

Following the rate hike, the Standing Deposit Facility rate was adjusted to 5.25 per cent, while the Marginal Standing Facility rate and Bank Rate were raised to 5.75 per cent.

The RBI had maintained the repo rate at 5.25 per cent for an extended period. The latest increase comes as inflationary pressures have strengthened and global economic conditions have become more uncertain.

Malhotra said global inflation was expected to rise significantly, prompting several major central banks to tighten monetary policy.

The decision also comes amid a sharp increase in crude oil prices, with international prices crossing $100 per barrel amid escalating tensions in West Asia. Higher energy costs could add to inflationary pressures in India.

The MPC's decision came against the backdrop of rising domestic inflation and changing global macroeconomic conditions. Economists had anticipated a rate increase, which would mark the first repo rate hike since February 2023.

With inflation moving closer to 5 per cent, some economists expect the RBI to maintain a tighter policy approach in upcoming MPC meetings.

SBI Research had earlier assessed that the risks were strongly tilted towards a 25-basis-point increase, citing broader inflationary pressures, changes in global economic conditions, liquidity developments and renewed repricing of risks in international markets.

The research body had argued that taking preventive action would be preferable to responding after inflationary pressures had become more entrenched.

Consumer Price Index inflation increased to 4.82 per cent in August from 4.45 per cent in July. Weather-related risks, including strong El Nino conditions and below-normal rainfall in October, could also affect Rabi crop production and add to food inflation pressures.

At the same time, higher crude oil prices, elevated global inflation and rising international bond yields have reduced the RBI's flexibility to maintain the previous policy rate unchanged.