RBI raises the repo rate to 5.50 percent and shuts the door on cuts

The repo rate is 5.50 percent, and cuts are off the table for now

The Reserve Bank of India’s Monetary Policy Committee raised the policy repo rate by 25 basis points to 5.50 percent on Wednesday, the first increase in nearly four years. The six members voted unanimously. Governor Sanjay Malhotra also moved the stance from neutral to calibrated tightening.

The standing deposit facility rate is now 5.25 percent. The marginal standing facility rate and the bank rate are 5.75 percent. Those two corridors move with the repo rate. A borrower who watches only the headline figure misses the floor and the ceiling that banks actually use for overnight money.

The rate had been cut to 5.25 percent in December 2025 and held there at the next four meetings. In the easing cycle the committee had cut 125 basis points in stages, from 6.50 percent to 5.25 percent, before Wednesday’s reverse. The previous long hold had lasted 11 meetings, with the rate kept at 6.50 percent from April 2023 to December 2024.

Inflation forecast up, growth forecast up

The RBI lifted its inflation forecast for the current financial year to 5.2 percent from 5 percent. Core inflation, which strips out food and fuel, is seen at 4.4 percent, from 4.3 percent. Malhotra said headline consumer inflation is expected to average almost 5.8 percent over the next three quarters. He said there is some evidence of elevated inflation expectations and a broadening of price pressures, and that inflation and its outlook are not as benign as they were last year.

Growth was revised the other way. Real GDP growth for the year is now projected at 7.1 percent, up from 6.7 percent, a 40 basis point lift. The quarterly path he set out is 7.2 percent in the second quarter, 6.9 percent in the third and 6.8 percent in the fourth. He tied the year’s growth so far to private consumption and to investment, which he said had risen by almost 12 percent, with net exports also adding.

High-frequency readings for the second quarter, he said, still show activity holding, with some moderation from the previous quarter, even with a deficient and uneven southwest monsoon. Looking ahead, he pointed to global uncertainty, supply-chain disruption, a weak monsoon and strong El Niño conditions as risks to the rabi season and to rural demand.

What calibrated tightening is supposed to mean

Malhotra described the new stance in the governor’s statement as a signal that rate cuts are off the table in the near term, and that the next move can only be a hike or a pause, depending on the data. At the press conference he called calibrated tightening a milder form of tightening, more data dependent than pre-determined. The duration and extent of any hiking cycle, he said, would depend on growth, inflation and the outlook.

A Reuters poll before the meeting had about 60 percent of economists looking for a 25 basis point rise. The vote was not a surprise to that group. The stance change is the part that binds the next few meetings. A neutral stance can hide a cut. Calibrated tightening, on the bank’s own wording, cannot.

Sakshi Gupta, an economist at HDFC Bank, said she expects another 50 to 75 basis points of hikes over the coming months. That is a house view, not an RBI promise. The committee has not published a path. It has published a floor: no cut until the outlook changes.

Who feels the 25 basis points first

The repo rate is the rate at which the RBI lends overnight to commercial banks against government securities. A 25 basis point rise does not rewrite every home loan on Thursday morning. It raises the cost of the marginal rupee a bank borrows from the central bank, and it resets the SDF and MSF bands. Banks that price floating-rate loans off an external benchmark linked to the repo rate will pass the change through on the reset date written in the contract. Fixed-rate borrowers are untouched until they refinance.

The last hike cycle before this one ended in February 2023. Wednesday’s move is the first rise since then. Between the end of that cycle and December 2025 the committee cut, then held. The new number to remember is 5.50 percent, with 5.25 percent underneath it and 5.75 percent above it, and a stated bar on cuts.