Reserve Bank of India raises repo rate to 5.5% for first time since 2023

The Reserve Bank of India raised its benchmark repo rate by 25 basis points to 5.5%. It was the first increase since February 2023, when the central bank ended its post-pandemic tightening cycle.

The move may make car, home and personal loans more expensive as commercial banks pass on higher borrowing costs to customers. India’s Sensex and Nifty equity indexes fell as investors assessed the potential effect of tighter financial conditions on consumption and corporate investment.

Inflation forecast revised higher

The RBI now projects consumer-price inflation at 5.2% in the 2026-27 financial year, up from its earlier 5% estimate. It cited weather disruptions, a weak monsoon and volatility in international oil prices among the inflation risks.

Oil prices are above $100 a barrel, while the rupee’s fall close to record lows against the dollar is increasing India’s import bill. The country imports about 90% of its crude oil and 50% of its gas.

Central bank leaves cuts aside

RBI Governor Sanjay Malhotra said the central bank could either raise rates further or keep them unchanged to contain inflation. He said rate cuts were not currently under consideration.

The RBI mostly cut rates during 2025 to support economic growth, then held policy unchanged from December 2025 until the latest decision. Economists had expected the increase, arguing that the economy was resilient enough to absorb its effect.

The RBI also raised its GDP growth forecast for the current financial year to 7.1%, 40 basis points above its previous estimate. It said it would use liquidity-management tools and act to curb excessive volatility in the rupee.

Anuj Puri, chairman of real-estate consultancy ANAROCK Group, said the rate increase could weigh on consumer sentiment and discretionary spending, including housing demand during the festive season.