RBI's rate panel opens a three-day meeting with the repo rate at 5.25 percent

The Reserve Bank of India's Monetary Policy Committee began its October meeting on Monday with the repo rate at 5.25 percent and a decision due on Wednesday 7 October. A Reuters poll published before the sitting found 35 of 61 economists, nearly 60 percent, expecting a 25 basis point rise to 5.50 percent. Of 53 economists asked about the path after that, 29 expected at least one further 25 basis point increase by December. A rise this week would be the first since February 2023.

The inflation number driving the poll is August retail inflation at 4.82 percent. That is the third month in a row above the 4 percent medium-term target. The tolerance band remains 2 to 6 percent, so 4.82 is inside the band and above the midpoint the MPC is mandated to aim at. Crude is the other input. The Iran war and the shut Strait of Hormuz have lifted oil and, with it, the chance that the August print is not the peak. Global bond yields have risen over the same weeks, which raises the cost of leaving Indian rates unchanged while US and European yields move.

The committee has six members. The governor chairs it. A decision needs a majority. The resolution on Wednesday will give the vote, the stance, and a set of forecasts for inflation and growth. Markets will read the stance line as closely as the rate. A hike to 5.50 percent with a neutral stance is a different signal from a hike with the withdrawal of accommodation still in the text. The poll did not ask that second question in a way that has been published as a single number.

Households meet the rate through loans priced off the repo. External benchmark loans, which most new floating-rate home and MSME loans have been since 2019, reset when the repo resets. A 25 basis point increase on a 50 lakh rupee, 20-year home loan adds on the order of 800 to 900 rupees a month, depending on the spread the bank already charges. That is arithmetic, not a forecast of what banks will do with deposit rates. Deposit rates have lagged repo moves in both directions in this cycle. A hike that is not matched on savings accounts widens the bank's margin. A hike that is matched raises the cost of funds and dulls the margin gain.

The government is the other counterparty. A higher repo raises the bill on fresh borrowing and on the portion of state and central debt that floats. It also, if it slows credit, takes some pressure off inflation the finance ministry has to explain. The MPC is not instructed to manage the fiscal deficit. It is instructed to publish a rate consistent with the inflation target. August at 4.82 percent, and oil where the Hormuz closure has put it, is why the poll leans to a hike even though growth has not been the complaint in recent reviews.

What Wednesday's paper has to settle is narrower than the poll. Either the repo stays at 5.25 percent or it moves to 5.50 percent, barring a larger step no economist in the published sample has treated as the base case. The inflation forecast for the December and March quarters will say whether the committee thinks 4.82 was a spike or a floor. The stance sentence will say whether 5.50 is a single adjustment or the start of the path 29 economists already pencilled in through December.

Until Wednesday morning the only locked figures are the ones the committee walked in with: a repo rate of 5.25 percent, August CPI at 4.82 percent, and a market count of 35 out of 61 expecting the first increase in more than three years.