RBI hikes repo rate to 5.50 per cent. Your EMI is next

By Strota Newsroom · 2026-09-29 · How Strota reports

The Reserve Bank of India raised its policy repo rate by 25 basis points to 5.50 per cent on Wednesday, the first increase in nearly four years. The decision was taken unanimously by the six-member Monetary Policy Committee, which met from October 5 to 7 under Governor Sanjay Malhotra. For a household with a floating-rate home loan this is not an abstract number, because the repo rate is the anchor that most retail loan rates are priced off, and the change reaches your monthly outgo through the lender's reset.

Most home loans sold in India are now tied to an external benchmark, and that benchmark is the repo rate. When the repo moves, the lender resets the interest rate on the loan, usually within a quarter. The borrower then meets one of two outcomes: a higher monthly instalment, or a longer tenure if the lender keeps the instalment the same. Neither is a choice the borrower gets to make; it is written into the loan agreement.

The arithmetic on a typical loan is small in any single month and large over a lifetime. On a 50 lakh rupee home loan priced at 7.5 per cent with a 25-year tenure, the equated monthly instalment is about 36,950 rupees today. A 25 basis point increase in the lending rate lifts it by roughly 817 rupees a month, to about 37,767 rupees, if the tenure is left untouched. That is nearly 9,800 rupees more a year, and about 2.45 lakh rupees of extra interest over the full 25 years. These are illustrative figures for one loan, calculated by BankBazaar and reported by Business Today, and the real impact depends on the outstanding principal, the remaining tenure and how quickly each lender passes the change through.

The committee did not stop at the rate. It changed its policy stance from neutral to calibrated tightening, a shift approved by four of the six members. In plain terms, the central bank has tilted firmly toward containing inflation and away from supporting growth. Governor Malhotra was explicit that the direction of travel has changed: given current conditions, rate cuts are off the table in the near term, and policy action from here can only be a rate increase or a pause.

The repo rate is the price at which banks borrow against government securities. Two other rates moved with it. The standing deposit facility, which absorbs surplus cash from banks, stands at 5.25 per cent. The marginal standing facility and the Bank Rate, both ceilings for emergency borrowing, are at 5.75 per cent. Together they set the corridor within which short-term market rates move.

The trigger is inflation, which had stopped behaving. Consumer price inflation rose to 4.8 per cent in August from 4.5 per cent in July, and the pressure was broad, not confined to one item. Food price increases became more generalised, with notable spikes in sugar and onion, while fuel inflation picked up on an unfavourable base. Core inflation, which strips out food and fuel, rose to 4.2 per cent. The share of items in the consumer basket recording inflation above 4 per cent climbed to about 37 per cent.

The RBI's own forecasts show why it moved. It now expects consumer price inflation to average 5.2 per cent through 2026-27, with the December quarter at 6.0 per cent and the March quarter at 5.7 per cent. Over the next three quarters, headline inflation is expected to average almost 5.8 per cent. That sits well above the 4 per cent target that anchors the framework, and the committee judged the balance of risks to have tilted far enough to justify acting now rather than waiting for the next reading.

What makes the decision unusual is that it is not a response to a weak economy. Growth has been strong. The RBI projected real GDP growth for 2026-27 at 7.1 per cent, with the risks to that number described as evenly balanced. In the June quarter, the economy grew 7.8 per cent, faster than expected. In other words, the central bank is tightening into strength, because the risk it is trying to contain sits on the price side, not the output side.

The global backdrop sharpened the case. The re-escalation of the conflict in West Asia has made crude oil prices volatile, and oil has traded above 100 dollars a barrel. The US Federal Reserve raised rates by 25 basis points in September, and tightening by other major central banks has reinforced expectations of higher global policy rates. Record bond yields in the big economies are pulling capital toward safer assets, adding to pressure on the rupee.

On the domestic side, the RBI flagged risks that sit close to rural budgets: a deficient south-west monsoon and strong El Nino conditions, both of which bear on the agriculture outlook and rural demand. The central bank said healthy foodgrain buffers and government intervention should cushion the impact, but the threat to food prices is exactly the kind of supply shock that can shove headline inflation around for months at a time.

The mechanism the bank worries about has a long tail. When a supply shock such as costlier fuel or food lasts long enough, it can seep into household expectations and into the pricing decisions of firms, turning a temporary spike into a sticky one. Monetary policy works mainly by damping those second-round effects, which is why it acts before the evidence is fully visible in the data. Governor Malhotra said the duration and extent of any hiking cycle would depend on how growth, inflation and the broadening of price pressures evolve.

For households, the change cuts both ways. Borrowers on repo-linked loans face a higher instalment or a longer tenure. Savers, in turn, usually see term deposit rates follow, though the pass-through to deposits typically lags the pass-through to loans. Anyone about to take a fresh loan will be quoted a rate that already reflects the new policy floor.

The one thing this decision does not settle is how far or how long the cycle runs. The RBI itself tied the duration and extent of any hiking cycle to the actual growth and inflation data, to how far price pressures broaden and to the second-round effects of a supply shock that is still working through the system. The committee's own words were that the stance only signals that cuts are off the table in the near term. Whether that means one increase or several is not in the record yet, and the honest reading for a borrower is that the cost of existing debt has moved up once while the direction of the next move remains genuinely open.

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