{"id":2252,"date":"2026-10-07T12:03:47","date_gmt":"2026-10-07T07:03:47","guid":{"rendered":"https:\/\/ipp-news.com\/?p=2252"},"modified":"2026-10-07T12:03:47","modified_gmt":"2026-10-07T07:03:47","slug":"india-central-bank-raises-key-rate-by-25bps-to-5-5","status":"publish","type":"post","link":"https:\/\/ipp-news.com\/?p=2252","title":{"rendered":"India central bank raises key rate by 25bps to 5.5%"},"content":{"rendered":"
\n

The Indian central bank raised its benchmark repo rate by 25 basis points to 5.5% on Wednesday, marking the first rise in \u200cnearly four years amid mounting inflation and strong economic growth.<\/strong><\/p>\n

The central bank also signalled further rate hikes by changing its stance from \u201cneutral\u201d to \u201ccalibrated tightening\u201d, but Governor Sanjay Malhotra said the extent and timing of any more increases would be contingent on actual inflation and growth outcomes.<\/p>\n

India has joined major central banks in raising rates as higher oil prices triggered by the Iran war fuel inflation, squeeze purchasing power and weigh on currencies.<\/p>\n

Weak monsoon rains \u200blinked to El Ni\u00f1o have compounded price pressures in Asia\u2019s third-largest economy.<\/p>\n

The six-member rate panel voted unanimously in favour of the rate hike.<\/p>\n

Nearly 60% of economists in \u200ba Reuters poll<\/a> had expected a 25 bps increase in the repo rate.<\/p>\n

\u201cThe Indian economy has been strong, and economic momentum remains broad-based,\u201d Malhotra \u2060said, adding that the inflation outlook had worsened since the last policy meeting.<\/p>\n

There is some evidence of elevated inflation expectations and broadening of price pressures, Malhotra said.<\/p>\n

\u201cIt is clear that \u200binflation and its outlook are not benign as they were last year.\u201d<\/p>\n

The RBI now expects inflation at 5.2%, a small increase over its earlier forecast of 5%. Core inflation is seen at 4.4% \u200bfrom 4.3% earlier.<\/p>\n

Analysts have been divided on how far the central bank will go in raising rates.<\/p>\n

\u201cWe expect another 50-75 basis points in rate hikes over the coming months,\u201d said Sakshi Gupta, economist at HDFC Bank.<\/p>\n

\u201cIn the event that the West Asia conflict lingers and oil prices remain elevated, the inflation risk could increase further, necessitating a more aggressive tightening cycle,\u201d Gupta said.<\/p>\n

India\u2019s benchmark 10-year bond yield was slightly higher at \u200b7.2269%, while the rupee currency hovered around its previous close at 96.43 against the US dollar.<\/p>\n

The benchmark Nifty 50 Index was down 0.3% but recovered from the day\u2019s lows.<\/p>\n

<\/a>Higher inflation<\/strong><\/h3>\n

Consumer inflation accelerated in August to 4.82% from a year earlier, above the Reserve Bank of India\u2019s 4% medium-term target for a third consecutive month.<\/p>\n

Higher prices of fuel and food are now rippling<\/a> through \u200cthe economy, with \u2060nearly half of the consumer basket seeing inflation above 4%.<\/p>\n

\u201cHeadline CPI inflation is expected to average almost 5.8% in the next three quarters,\u201d Malhotra said.<\/p>\n

\u201cIn this milieu, recalibrating the policy rate is imperative\u201d.<\/p>\n

At the same time, economic growth remains strong, giving the central bank greater leeway to raise the cost of borrowing for consumers and businesses.<\/p>\n

The central bank expects GDP growth in the current financial year at 7.1%, 40 bps higher than its earlier projections.<\/p>\n

GDP growth<\/a> for the April-June quarter stood at 7.8%, well above the central bank\u2019s forecast of 7%.<\/p>\n

Malhotra said there is limited evidence \u200bof demand-side pressures in inflation so far, \u200bbut risks exist \u201cin view of strong growth \u2060in monetary and credit aggregates.\u201d<\/p>\n

India\u2019s bank credit growth has soared in the past few months and grew by 18.8% in October, reflecting strong demand.<\/p>\n

<\/a>Managing liquidity<\/strong><\/h3>\n

Contrary to market expectations, the central bank refrained from announcing additional measures such as a hike in the reserve ratio to \u200bdrain surplus liquidity from the banking system.<\/p>\n

\u201cThe Reserve Bank will use an appropriate mix of liquidity management tools,\u201d Malhotra said.<\/p>\n

Schemes to draw \u200bdollars and support the rupee \u2060drew close to $144 billion as of mid-September, according to central bank data.<\/p>\n

These dollars, swapped with the central bank, led to a flood of liquidity which peaked at a record 11.16 trillion rupees at the beginning of September.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The Indian central bank raised its benchmark repo rate by 25 basis points to 5.5% on Wednesday, marking the first rise in \u200cnearly four years amid mounting inflation and strong economic growth. The central bank also signalled further rate hikes by changing its stance from \u201cneutral\u201d to \u201ccalibrated tightening\u201d, but Governor Sanjay Malhotra said the extent and timing of any more increases would be contingent on actual inflation and growth outcomes. India has joined major central banks in raising rates as higher oil prices triggered by the Iran war fuel…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19],"tags":[],"class_list":["post-2252","post","type-post","status-publish","format-standard","hentry","category-english"],"gutentor_comment":0,"_links":{"self":[{"href":"https:\/\/ipp-news.com\/index.php?rest_route=\/wp\/v2\/posts\/2252","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ipp-news.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ipp-news.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ipp-news.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ipp-news.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2252"}],"version-history":[{"count":0,"href":"https:\/\/ipp-news.com\/index.php?rest_route=\/wp\/v2\/posts\/2252\/revisions"}],"wp:attachment":[{"href":"https:\/\/ipp-news.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2252"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ipp-news.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2252"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ipp-news.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2252"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}