RBI Rate Hike Watch: Repo Rate Could Rise To 6% Amid Inflation Risks

The Reserve Bank of India (RBI) could begin a fresh rate-hiking cycle this week, with a Union Bank of India report projecting that the benchmark repo rate may eventually rise to 5.75%-6% in FY27 as inflationary pressures intensify. The RBI’s Monetary Policy Committee (MPC) is scheduled to meet from October 5 to 7, with the policy decision due on October 7.

RBI Rate Hike Watch: Repo Rate Could Rise To 6% Amid Inflation Risks

The Reserve Bank of India (RBI) could raise its benchmark repo rate by 25 basis points at its upcoming October monetary policy meeting, with further hikes potentially taking the rate to 5.75%-6% during FY27, according to a Union Bank of India report.

The RBI’s six-member Monetary Policy Committee (MPC) is scheduled to meet from October 5 to 7, with the policy decision expected on October 7. The central bank has kept the repo rate unchanged at 5.25% during its last four policy reviews after cutting rates by a cumulative 125 basis points in 2025.

Why Is The RBI Considering A Rate Hike?

Rising inflation, higher crude oil prices, a weakening rupee and tighter global financial conditions have increased pressure on the RBI to reassess its monetary policy stance.

Retail inflation rose to 4.82% in August, above the RBI’s medium-term target of 4% for the third consecutive month. The combination of stronger price pressures and robust economic growth has strengthened expectations of monetary tightening.

SBI Research has also warned that consumer inflation could rise to around 5.65% in September and cross 6.5% in October and November. It expects the RBI to consider at least a 25-basis-point hike at the October meeting.

Repo Rate Could Reach 6%

According to the Union Bank report, the RBI could raise the repo rate by 25 basis points in October, followed by one or two additional hikes during FY27. This could push the benchmark rate to between 5.75% and 6%.

The report also pointed to pressure on government securities yields as higher crude prices and rising global yields increase expectations of tighter monetary policy.

A previous Union Bank research report had similarly projected three rate hikes during the second half of FY27, potentially taking the repo rate towards 6%.

What Could Higher Repo Rates Mean For Borrowers?

A higher repo rate can increase borrowing costs across the financial system, particularly for loans linked to external benchmarks. Home loan, personal loan and business loan borrowers could face higher interest rates if banks pass on the increase.

Existing borrowers with floating-rate loans may see their equated monthly instalments (EMIs) rise or their loan tenures extended, depending on how lenders transmit the rate increase.

What About Fixed Deposit Investors?

Higher interest rates can eventually benefit savers as banks may raise deposit rates to attract funds. However, the extent and timing of any increase in fixed deposit rates would depend on banks’ liquidity conditions, deposit competition and the RBI’s broader policy stance.

RBI Faces A Delicate Balancing Act

The RBI is now weighing inflation risks against economic growth. India’s economy has remained resilient, while higher inflation, elevated energy prices and global uncertainties have increased the risks to price stability.

A 25-basis-point hike in October would be the first increase in the repo rate since February 2023. Economists surveyed by Reuters had also expected the RBI to raise the rate to 5.50% in October, with another hike possible later in the year.

For borrowers, investors and financial markets, the October 5-7 MPC meeting will therefore be closely watched for both the immediate rate decision and signals about the RBI’s approach to further rate increases.