RBI Hikes Repo Rate to 5.50%, Shifts to 'Calibrated Tightening' — First Hike in 3.5 Years

India's era of cheaper money is over. The Reserve Bank of India's Monetary Policy Committee (MPC) on 7 October 2026 voted unanimously to raise the policy repo rate by 25 basis points to 5.50% — the first hike since February 2023, ending a long easing stretch in which the RBI cut rates by a cumulative 125 bps through 2025.

Alongside the hike, the MPC shifted its stance from 'neutral' to 'calibrated tightening' by a 4-2 majority — a signal that the central bank is not done. Governor Sanjay Malhotra said further rate cuts are "off the table" in the near term, with the duration and extent of the hike cycle contingent on how inflation evolves. The Standing Deposit Facility rate moves to 5.25%, and the Marginal Standing Facility rate and Bank Rate to 5.75%.

Why now? Inflation is no longer benign. CPI stood at 4.82% in August, and the RBI expects it to peak at around 5.9% in the third quarter as weak monsoon conditions, elevated crude prices near $100 a barrel and global yields pressure prices. The MPC raised its FY27 inflation forecast to 5.2% (from 5.0%) — while simultaneously raising its FY27 GDP growth forecast to 7.1% (from 6.7%), a sign the RBI believes the economy is strong enough to absorb tighter money.

Markets moved immediately: the G-Sec yield hardened 5–6 basis points to ~7.25%, and the Sensex slipped 429 points as rate-sensitive stocks came under pressure. Economists broadly expect another 25 bps hike in December, subject to inflation data.