The Reserve Bank of India (RBI) raised its policy repo rate by 25 basis points (bps) to 5.5% on October 7, marking its first increase in four years, as higher food and energy costs added to inflation risks. 

 

The RBI's Monetary Policy Committee voted unanimously for the increase and shifted its stance from “neutral” to “calibrated tightening”, effectively limiting its next decision to either another hike or a pause. The standing deposit facility rate was raised to 5.25%, while the marginal standing facility rate and bank rate increased to 5.75%. 

 

In a statement, the RBI said the Indian economy remained resilient despite global headwinds, and raised its GDP growth forecast for fiscal 2026-27 to 7.1% from 6.7%. It also lifted its inflation forecast to 5.2% from 5.1%. 

 

Deepali Bhargava, regional head of research of Asia Pacific at ING, described the decision in a research note as “a tighter but not hawkish one”, arguing that the central bank was signalling cautious and data-dependent tightening rather than an aggressive hiking cycle. 

 

Bhargava expects the RBI to deliver a further 50 bps of rate increases over the next six months, adding that the forecast could change if oil prices remain persistently high, El Niño has a stronger-than-expected effect on food prices, or the rupee depreciates more sharply.

 

A Nomura research report described the October decision as the start of a short tightening cycle and suggested that the rate increase partly reflected pressure on the rupee from higher global yields and tighter US monetary policy. The rupee has weakened by about 6%-7% against the US dollar in 2026, making it one of the weaker-performing major Asian currencies this year.

 

RBA delivers fourth rate hike of 2026

 

In another signal that central banks are becoming more hawkish, the Reserve Bank of Australia (RBA) raised its cash rate by 25 bps to 4.6% on September 29, its fourth increase of 2026 and a cumulative 100 bps of tightening this year. The decision was unanimous among its Monetary Policy Board.

The RBA said some of the upisde inflation risks identified in August were materialising, citing disruptions to global oil supplies, higher energy prices, AI-related demand for technology goods and persistent domestic capacity pressures. The central bank added that further tightening might be needed. The RBA's next meeting is scheduled for November 2-3.