RBI MPC meeting begins amid expectations of first rate hike since 2023

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) began its three-day meeting on Monday amid growing expectations of the first interest rate hike since 2023, as inflationary pressures and elevated crude oil prices raise concerns over the inflation outlook, according to agency reports.
The RBI has kept the repo rate unchanged at 5.25 per cent for four consecutive policy meetings after cutting rates by a cumulative 125 basis points in 2025.However, mounting inflationary risks and elevated crude oil prices have strengthened expectations that the central bank could shift towards monetary tightening. The policy decision is due on Wednesday, October 7, with the market largely expecting a 25-basis-point hike in the repo rate.At the time of reporting, Brent crude was trading at around USD 101.26 per barrel, while crude oil was trading at around USD 89.98 per barrel.

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Meanwhile, Union Bank of India expects the RBI to raise the repo rate by 25 basis points in October and deliver further hikes in FY27, potentially taking the rate to 5.75-6 per cent."We expect a 25bps rate hike, followed by one or two additional hikes during the remainder of FY27, taking the repo rate to 5.75-6.00%, accompanied by hawkish guidance signalling continued vigilance on inflation," it said in a report.
According to EY, the RBI is likely to weigh four key factors at its October 2026 MPC meeting: the US Federal Reserve's recent 25-basis-point rate 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," EY said.
At its August policy meeting, the RBI MPC kept the benchmark repo rate unchanged at 5.25 per cent and retained its 'neutral' stance, opting to wait for greater clarity on the inflation outlook amid uncertainties over the southwest monsoon, El Nino, geopolitical tensions and global trade policies.The central bank also kept the Standing Deposit Facility (SDF) rate unchanged at 5 per cent, while retaining the Marginal Standing Facility (MSF) rate and the bank rate at 5.5 per cent.
RBI Governor Sanjay Malhotra noted that the headline inflation was expected to rise, largely due to supply-side pressures from food and fuel, while core inflation remained moderate and was projected to ease after peaking in the third quarter.He also noted that the MPC needed greater clarity on the trajectory and composition of inflation before taking further policy action.
According to an SBI Research report, consumer price inflation is expected to breach 6.5 per cent in the coming months, strengthening the case for the 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. Time to build moats through a 25-bps hike in October and Dec MPC each, and then to pause and take stock with upcoming data," the report said.The RBI's October policy decision will be closely watched by financial markets, businesses and borrowers for signals on the future course of interest rates and monetary policy.

(Business Correspondent)