The Reserve Bank of India raised the repo rate by 25 basis points to 5.50% on Wednesday, increasing the likelihood of higher borrowing costs for home and car loan customers and placing fresh pressure on household EMIs. The decision was announced by RBI Governor Sanjay Malhotra after the central bank’s three-day Monetary Policy Committee meeting.
The repo rate had remained unchanged at 5.25% for nearly four years. The RBI’s latest decision marks the first increase in that period, according to Aaj Tak Business. Along with the repo rate, the central bank raised the Standing Deposit Facility rate by 25 basis points to 5.25% and the Marginal Standing Facility rate to 5.75%.
The RBI also changed its monetary policy stance from neutral to calibrated tightening. This signals that controlling inflation has become the central priority of monetary policy and reduces the likelihood of a short-term rate cut, the report said.
The rate decision comes against the backdrop of uncertainty in global markets, the West Asia conflict and a sharp increase in crude oil prices. In his address, Malhotra referred to the risk of higher global inflation and the potential effect of energy prices on food and other consumer costs.
For borrowers, the effect will depend on how individual banks and lenders transmit the policy change to their lending rates. Banks obtain short-term funds from the RBI at the repo rate. When that rate rises, their cost of borrowing from the central bank increases, creating pressure to raise lending rates for customers. Home loans with floating interest rates could therefore see higher EMIs or longer repayment periods if lenders pass on the increase.
The same transmission mechanism applies to vehicle loans and other forms of borrowing. The impact on a particular borrower will depend on the loan’s interest-rate structure, the lender’s policy and the remaining tenure and outstanding principal. The RBI decision itself does not set the exact interest rate charged by every bank or determine the precise increase in an individual customer’s EMI.
The central bank also raised its inflation projections for the financial year 2026-27. Its estimate for core inflation was increased from 4.3% to 4.4%, while the forecast for Consumer Price Index-based inflation was raised from 5% to 5.2%. The governor attributed the higher inflation outlook to a weak monsoon during the rabi season and the effects of El Niño.
At the same time, the RBI raised its projection for real gross domestic product growth in FY27 from 6.7% to 7.1%. The estimate for the second quarter was increased from 6.4% to 7.2%, and the third-quarter projection was raised from 6.5% to 6.9%. The fourth-quarter growth estimate was retained at 6.8%.
The October meeting was the fourth RBI MPC meeting of 2026. The repo rate had been kept unchanged at 5.25% during the April, June and August meetings. The latest decision now leaves banks and borrowers to respond to a tighter monetary policy stance while the RBI monitors inflation, energy prices and economic growth.
