Inflation, oil prices and rupee weakness push RBI to raise repo rate to 5.5%

The Reserve Bank of India (RBI) raised its benchmark repo rate by 25 basis points to 5.5% on Wednesday, delivering the first increase since February 2023 as inflationary pressures, elevated crude oil prices and a weaker rupee weigh on the economy.

The decision was in line with market expectations. Most economists had forecast a 25-basis-point increase, with the move taking the repo rate from 5.25% to 5.5%.

MPC backs rate hike unanimously

The rate increase was approved unanimously by the Monetary Policy Committee (MPC), headed by RBI Governor Sanjay Malhotra.

The repo rate is the interest rate at which the central bank lends to commercial banks. A higher rate can increase borrowing costs across the economy, including for loans taken by households and businesses.

The RBI had kept the repo rate at 5.25% through its previous four policy reviews after cutting it by a cumulative 125 basis points in 2025.

Inflation and crude prices drive policy shift

The latest decision comes against a backdrop of renewed inflation concerns. Retail inflation rose to 4.82% in August, moving above the RBI's 4% medium-term target for the third consecutive month, although it remained within the central bank's 2% to 6% tolerance band.

Higher energy prices have added to the pressure, while the Indian rupee has weakened by around 6% against the US dollar this year. Rising global bond yields and tighter monetary policy in other major economies have also increased pressure on the RBI to respond.

The rate increase marks a shift after more than three years without a hike. The previous increase came in February 2023, when the RBI raised the repo rate by 25 basis points to 6.5%.