Regulatory desk · RBI document · 7 Oct 2026
RBI raised its policy repo rate to 5.50% from 5.25% on 7 October and moved its stance to calibrated tightening
The terms this paper uses
What the policy repo rate is. The policy repo rate is the rate at which the Reserve Bank of India lends money to banks under its lending-and-deposit window, which RBI calls the liquidity adjustment facility. It is RBI's main signal of what money costs in India. RBI's notice of the change is addressed to all participants in that window, so it is for banks and the other bodies that borrow from or park money with RBI; through them it reaches every borrower and saver whose rate follows it. From 7 October it is 5.50%, up 25 — hundredths of a percentage point from 5.25%, with immediate effect.
The other words this paper uses
Who sets it. The rate is set by RBI's Monetary Policy Committee, which meets, votes and publishes a resolution. This time every member voted for the rise.
What a stance is. Beside the rate, the committee states a stance: a signal of which way its next moves can go. It changed the stance to calibrated tightening, which RBI says means “rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause”. Two members, Dr. Nagesh Kumar and Prof. Ram Singh, wanted the stance kept at neutral, so the stance change was not unanimous even though the rate vote was.
The rates that move with it. Three other RBI rates follow the repo rate. The standing deposit facility rate, which RBI pays banks that park spare money with it, is now 5.25%. The marginal standing facility rate, at which banks can borrow from RBI in a pinch, and the Bank Rate are both 5.75%. The Bank Rate also sets the penalty banks pay when they fall short of the cash and liquid holdings RBI requires of them.
The overnight call rate. Banks lend to each other overnight at the call rate. RBI says it will use a mix of tools to bring the average call rate in line with the repo rate. Since the August meeting, money in the banking system has been in surplus by an average of ₹5.9 lakh crore a day.
What RBI expects for prices and growth. RBI projects consumer price inflation at 5.2% for 2026-27, with 6.0% in the third quarter and 5.7% in the fourth, and says headline inflation should average almost 5.8% over the next three quarters. Core inflation, the underlying measure it quotes alongside, is projected at 4.4% this year. It projects real growth of the economy at 7.1% for 2026-27.
Money growth. Broad money is the total of cash and bank deposits in the economy. It was growing 16.9% year on year at the end of September, against 13.0% at the end of March.
Lending and deposit rate averages. RBI publishes the average rate banks charge on loans and pay on term deposits, weighted by amount, split into fresh (taken or given in the month) and outstanding (everything on the books). In July-August 2026 the average rate on fresh rupee loans rose 8 basis points, of which RBI puts 3 basis points down to what it calls the interest rate effect; the rate on loans already outstanding did not move. Over the same months the average rate on fresh term deposits fell 28 basis points and on outstanding deposits 2 basis points. In August the average rate on fresh loans was 8.61% and on fresh term deposits 5.67%.
Why deposit rates fell. RBI ties the fall to cheaper bulk deposits, after a surge of money into banks from FCNR(B) deposits, which are foreign-currency deposits banks take from non-residents.
Other central banks this year. Since the end of 2025 most of the other central banks shown here have raised their policy rates: Japan from 0.75% to 1.25%, the United States from 3.62% to 3.88%, the euro area from 2.00% to 2.50%, Indonesia from 4.75% to 5.75%, the Philippines from 4.50% to 5.00%, South Africa from 6.75% to 7.25%, and Korea from 2.50% to 2.75% by end-July. A few cut: Brazil from 15.00% to 13.75%, Mexico from 7.00% to 6.50% and Thailand from 1.25% to 1.00%. China held at 3.00% and the United Kingdom at 3.75%. India's rate was 5.25% from early December 2025 until this rise.
In one line
RBI raised the policy repo rate to 5.50% and ruled rate cuts out for now, saying “inflation and its outlook are not benign as they were last year”. It hits banks first, through the rate they pay RBI for money, then borrowers on repo-linked loans and depositors as far as banks pass it on.
Why India is not raising alone: change in policy rate since end-2025, India and 12 other central banks
Related rules on the same subject
- Monetary Policy Statement: Resolution of the Monetary Policy Committee (MPC) August 03 to 05, 2026 (RBI Bulletin August 2026) (1 Aug 2026, a sibling rule on the same subject)
- Minutes of the Monetary Policy Committee Meeting, August 3 to 5, 2026 (19 Aug 2026, a sibling rule on the same subject)
- Monetary Policy Statement, 2026-27 Resolution of the Monetary Policy Committee August 3 to 5, 2026 (5 Aug 2026, a sibling rule on the same subject)
What we make of it opinion
What do we think this paper does, and why?
RBI raised its policy repo rate from 5.25% to 5.50% with every committee member voting for it, and changed its stance to calibrated tightening, so the next move can only be a hike or a pause. The bank says “inflation and its outlook are not benign as they were last year”, pointing to “the deficient monsoon, ongoing El Niño conditions and high energy and other commodity prices”, and to risks from “strong growth in monetary and credit aggregates”. What we don't know is how much of the rise banks will pass to borrowers on new loans, when in July-August the rate on new loans rose only 8 basis points while the rate on new deposits fell 28.
Why we think so3 reasons
On what grounds?
- The first reason is RBI's own look outward. It says the renewed West Asia conflict and “the consequent sharp volatility in crude oil prices” have kept the world economy unsettled since August 2026, and that “the US Fed hiked by 25 bps in September”. Since the end of 2025 most of the other central banks shown here have raised too, the United States, the euro area and Japan among them, while Brazil, Mexico and Thailand cut and China and the United Kingdom held. India now sits with the raisers, as the chart below shows.
- The second reason is at home, and it is the one RBI leads with. It expects headline inflation to average almost 5.8% over the next three quarters and core inflation at 4.4% this year, and it sees supply pressures still feeding through. It finds little sign of demand pushing prices, but broad money was growing 16.9% at the end of September against 13.0% at the end of March. Two members wanted the stance left at neutral, so the committee agreed on the rise more firmly than on what comes next.
- Both of those explain the rise; the third is about whether it reaches borrowers. Before the hike, banks were already widening the gap between new loans and new deposits: new-loan rates rose 8 basis points in July-August while new-deposit rates fell 28. RBI says the lending side “reflects robust credit demand as well as a change in composition of banks’ lending”, and ties the deposit side to cheaper bulk deposits after foreign-currency deposit inflows. A higher repo rate lands on that gap.
The figures behind the first chart
| Figure | Value | Period |
|---|---|---|
| Policy repo rate | 5.50 | at 8 October 2026 |
| United States | 3.88 | September 2026 |
| Euro area | 2.50 | September 2026 |
| Japan | 1.25 | September 2026 |
| United Kingdom | 3.75 | September 2026 |
| China | 3.00 | September 2026 |
| Indonesia | 5.75 | September 2026 |
| Korea | 2.75 | July 2026 |
| Philippines | 5.00 | September 2026 |
| Thailand | 1.00 | September 2026 |
| South Africa | 7.25 | September 2026 |
| Brazil | 13.75 | September 2026 |
| Mexico | 6.50 | September 2026 |
What would prove us wrong3 trip-wires
What would we have to see to drop that read?
- If consumer inflation comes in well below RBI's projections of 6.0% for the third quarter and 5.7% for the fourth, the case RBI leads with weakens and the rise looks early.
- If rates on new loans still barely move in the months after the rise, the higher cost of money is landing in bank margins rather than on borrowers.
- If the United States, the euro area and Japan turn back to cuts, the outward reason RBI cites weakens and India's move looks more home-grown.
What to watch3 things to watch
What happens next, and when would we know?
- The lending and deposit rate averages for September and October: whether new-loan rates climb faster than the 8 basis points of July-August.
- The overnight call rate against 5.50%, and whether RBI drains the surplus that averaged ₹5.9 lakh crore a day to bring them together.
- The next committee meeting: a hike or a pause, and whether the two members who wanted a neutral stance hold that view.
Who this touches
Who could benefit and who is at risk, and on what condition?
This part is our opinion · every number in it comes from the Facts above · each effect is a possibility, and says what it depends on
| Who | Potential effect | How it reaches them | How sure |
|---|---|---|---|
| Rates, liquidity and government borrowing | ◆ unclearpulls both ways: if RBI drains the surplus to pull the overnight call rate up to the new repo rate, overnight money gets dearer; if the surplus stays, market rates can lag the repo rate. The call rate against 5.50% in the coming weeks would settle it | RBI says it will use a mix of liquidity tools to align the average call rate with the repo rate, starting from a daily surplus that averaged ₹5.9 lakh crore since August. The chart below tracks broad money growth, which reached 16.9% a year by 30 September. | Inferred · RBI has not said which tools it will use or when |
| Borrowers | ▼ potential riskif banks pass the rise into loans whose rate is tied to the repo rate and into the rates on new loans | a loan priced off the repo rate resets upward when the repo rate rises; new loans are priced against a dearer cost of money | Inferred · in July-August new-loan rates rose only 8 basis points and rates on loans already outstanding did not move |
| Banks | ▲ potential benefitif rates on new loans keep rising faster than rates on new deposits, as they did in July-August | the gap between what a bank earns on new loans and pays on new deposits widens: new-loan rates rose 8 basis points while new term-deposit rates fell 28, which RBI ties to strong credit demand on one side and cheaper bulk deposits on the other | Measured · for July-August only; the months after the hike are not yet published |
| Savers & depositors | ◆ unclearpulls both ways: a higher repo rate gives banks reason to pay more on deposits, but in July-August new-deposit rates fell as bulk deposits got cheaper. The September and October deposit-rate averages would settle it | through the rate banks offer on new term deposits, which moves only when banks choose to reprice | Inferred · deposit rates fell before the hike for a reason RBI says was a liquidity surge |
| Deposit & savings apps | ◆ unclearpulls both ways: if banks lift deposit rates, apps that sell bank deposits have a better rate to show; if banks keep relying on cheap bulk money, little changes. The next deposit-rate averages would settle it | the product such an app sells is the bank's own deposit rate, so its offer moves only when the bank's does | Inferred · RBI's statement says nothing about how deposits are sold |
| Finance companies & fintech lenders | ◆ unclearpulls both ways: a higher policy rate raises the price of borrowed money, while surplus money in the system and cheaper bulk deposits point to easy funding for now. The path of the call rate would settle it | through the cost of the money such lenders borrow, which tends to follow the policy rate and the overnight rates RBI is steering | Unresolved · RBI's statement says nothing about non-bank lenders' funding |
Why bank margins can widen: average rate on new loans beside average rate on new term deposits, August 2026
The evidence
From RBI's paper, Monetary Policy Statement, 2026-27 Resolution of the Monetary Policy Committee October 5 to 7, 2026, 7 Oct 2026. The paper.
Also in the papers — what the rule is today, who is covered, and by when
From Monetary Policy Statement, 2026-27 Resolution of the Monetary Policy Committee October 5 to 7, 2026:
| Where | What it says | The paper's words |
|---|---|---|
| paragraph 15 | Two named members wanted the stance kept at neutral, so the stance change was not unanimous even though the rate vote was. | “Two members - Dr. Nagesh Kumar and Prof. Ram Singh - were of the view that the stance be retained at neutral.” |
| paragraph 11 | The committee gives the inflation outlook as its reason: headline CPI inflation is expected to average almost 5.8 per cent over the next three quarters, and core inflation is projected at 4.4 per cent this year. | “In the light of available data, it is clear that inflation and its outlook are not benign as they were last year with headline CPI inflation expected to average almost 5.8 per cent in the next three quarters and core inflation projected at 4.4 per cent this year.” |
| paragraph 9 | The committee names a weak monsoon, El Nino conditions and high energy and commodity prices as continuing supply-side pressures on inflation. | “The near-term outlook on inflation points towards continued pressures from supply side on account of the deficient monsoon, ongoing El Niño conditions and high energy and other commodity prices, the pass through of which is still continuing.” |
| paragraph 3 | The committee points to the renewed West Asia conflict and the resulting swings in crude oil prices as unsettling the global economy since August 2026. | “Since the last MPC meeting in August 2026, the re-escalation of the conflict in West Asia and the consequent sharp volatility in crude oil prices has kept the global economy in a state of flux.” |
| paragraph 3 | The committee records that the US central bank raised its rate by 25 bps in September. | “The US Fed hiked by 25 bps in September.” |
| paragraph 14 | The committee says the new stance rules out near-term rate cuts, leaving only a hike or a pause as the next action. | “It only signals that given the current conditions, rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook.” |
| paragraph 13 | The committee sees limited evidence of demand-side pressure but flags risk from strong growth in money and credit. | “Similarly, while there is limited evidence of demand side pressures, risks in view of strong growth in monetary and credit aggregates exist.” |
From Liquidity Adjustment Facility - Change in rates:
| Where | What it says | The paper's words |
|---|---|---|
| paragraph 1 | The repo rate rise of 25 basis points, from 5.25 per cent to 5.50 per cent, took effect immediately. | “Liquidity Adjustment Facility - Change in rates RBI/2026-27/282 FMOD.MAOG.No.154/01.01.001/2026-27 October 07, 2026 All Liquidity Adjustment Facility (LAF) participants Madam/Sir, Liquidity Adjustment Facility - Change in rates As announced in the Monetary Policy Statement dated October 07, 2026 , it has been decided by the Monetary Policy Committee (MPC) to increase the policy repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 5.25 per cent to 5.50 per cent with immediate effect.” |
From Penal Interest on shortfall in CRR and SLR requirements - Change in Bank Rate:
| Where | What it says | The paper's words |
|---|---|---|
| paragraph 2 | The Bank Rate was raised by 25 basis points, from 5.50 per cent to 5.75 per cent, with immediate effect. | “As announced in the Monetary Policy Statement, 2026-27 dated October 07, 2026 , the Bank Rate is revised upwards by 25 basis points from 5.50 per cent to 5.75 per cent with immediate effect.” |
From Governor’s Statement, October 7, 2026:
| Where | What it says | The paper's words |
|---|---|---|
| paragraph 18 | The central bank says it will use a mix of liquidity tools to bring the overnight call rate in line with the repo rate. | “Going forward, the Reserve Bank will use an appropriate mix of liquidity management tools and strive to align the weighted average call rate (WACR) with the policy repo rate.” |
| paragraph 17, transmission | During July-August 2026, banks' average rate on fresh rupee loans rose by 8 bps (3 bps of it the interest-rate effect), and the rate on outstanding loans did not change. | “During July-August 2026, the weighted average lending rate (WALR) of SCBs on fresh rupee loans hardened by 8 bps (interest rate effect: 3 bps), while it remained unchanged on outstanding loans.” |
| paragraph 17, transmission | Average term deposit rates fell by 28 bps on fresh deposits and 2 bps on outstanding deposits, attributed to lower bulk deposit rates after a surge in liquidity from foreign-currency deposit mobilisation. | “In contrast, the weighted average domestic term deposit rate (WADTDR) moderated by 28 bps and 2 bps for fresh deposits and outstanding deposits, respectively, due to a decline in bulk deposit rates on account of a surge in liquidity from mobilisation of FCNR(B) deposits.” |
| paragraph 17, transmission | The central bank attributes weaker pass-through to fresh lending rates to strong credit demand and a shift in the mix of bank lending. | “The moderation in transmission to fresh lending rates in recent months reflects robust credit demand as well as a change in composition of banks’ lending.” |
| paragraph 16 | System liquidity, measured by the net position under the central bank's lending-and-deposit window, was in daily surplus by ₹5.9 lakh crore on average since the August 2026 meeting. | “As measured by the net position under the LAF, system liquidity stood at an average daily surplus of ₹5.9 lakh crore since the last MPC meeting in August 2026.” |
What else we hold on this
We hold 3 other Reserve Bank of India documents on this subject, published between 1 Aug 2026 and 19 Aug 2026 — and none of them has become a card. They are the store's, not the paper's: nothing below is cited by the document above.
- Minutes of the Monetary Policy Committee Meeting, August 3 to 5, 202619 Aug 2026 · no card written
- Monetary Policy Statement, 2026-27 Resolution of the Monetary Policy Committee…5 Aug 2026 · no card written
- Monetary Policy Statement: Resolution of the Monetary Policy Committee (MPC) August…1 Aug 2026 · no card written
Go deeper
Whether we have said this before
0 of them became a card.
Audit trail: how this card was checked, and the notes behind each figure
Status: Clear. the paper is published and every fact is quoted from the Reserve Bank of India's own text
Exact figures: 19 quoted facts from Monetary Policy Statement, 2026-27 Resolution of the Monetary Policy Committee October 5 to 7, 2026; the warning on every one: none.
Words used on this page, in plain English
- basis points
- hundredths of a percentage point