RBI MPC begins: Is first rate hike since 2023 coming?
What's the story
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has begun a three-day meeting today. The gathering comes amid rising expectations of an interest rate hike, the first since 2023. The RBI has maintained the repo rate at 5.25% for four consecutive policy reviews after a cumulative cut of 125 basis points in 2025. However, rising inflationary pressures and high crude oil prices have intensified expectations that the central bank may move toward monetary tightening.
Rate expectations
Union Bank of India predicts repo rate to hit 6%
The market largely expects the RBI to raise interest rates by 25 basis points in its upcoming policy announcement on Wednesday.
Union Bank of India has predicted a repo rate hike of 25 bps in October and more increases in FY27, possibly pushing the rate to between 5.75% and 6%.
"We expect a 25bps rate hike, followed by one or two additional hikes during the remainder of FY27," it said in its report.
Decision factors
EY warns of persistent inflationary pressures
As per EY, the apex bank is likely to weigh four key factors at its October 2026 MPC meeting: the US Federal Reserve's recent 25bps hike, India's comfortable growth outlook, persistent inflationary pressures reflected in WPI and CPI, and sustained above-trend growth in broad money supply (M3).
"Chances for a change in the RBI's policy stance and a 25-basis-point hike in the repo rate are high," it said.
Policy stance
RBI kept repo rate unchanged at August policy review
At its August policy meeting, the RBI MPC had kept the benchmark repo rate unchanged at 5.25% and maintained a 'neutral' stance.
This was done in light of uncertainties over the southwest monsoon, El Nino, geopolitical tensions, and global trade policies.
The central bank also kept other rates unchanged while noting that headline inflation was likely to rise due to supply-side pressures from food and fuel.
Inflation forecast
SBI Research predicts rise in consumer price inflation
SBI Research has predicted that consumer price inflation will breach 6.5% in the coming months, strengthening the case for RBI to build a policy buffer against rising inflationary risks.
"Going forward, we believe CPI inflation may cross the 6.5% mark before dropping to less than 6% in early 2027," it said.
This prediction further highlights the potential need for a rate hike by RBI in its upcoming policy review meeting on Wednesday.