The Reserve Bank of India has raised the repo rate by 25 basis points to 5.5%, making home loans and other borrowings more expensive while signalling that further rate cuts are not expected in the near term. The increase is the RBI’s first since February 2023 and is expected to affect household budgets during the festive season.
The Monetary Policy Committee unanimously approved the hike and shifted its policy stance from neutral to “calibrated tightening”. RBI Governor Sanjay Malhotra said the stance indicated that future policy action could involve another rate increase or a pause, depending on economic conditions and the outlook.
For borrowers, the immediate impact will be felt through higher equated monthly instalments if banks pass on the increase to floating-rate loans. A Rs 1 crore loan with a 15-year tenure could see its monthly EMI rise by around Rs 1,500, based on a lending rate of 8.5%. The increase would be about Rs 1,471 a month under the calculation cited in the report.
Borrowers who choose to keep their EMI unchanged could instead face a longer repayment period. The higher rate could extend the tenure of the same loan by approximately 5.5 to 5.9 months, equivalent to around six additional instalments. The effect will vary by lender, loan structure, outstanding principal and the extent to which banks transmit the repo-rate change.
The decision also has implications for the housing market, where financing costs influence both buyer affordability and developer sales. Higher EMIs can reduce the amount households are able or willing to borrow, particularly for first-time buyers and purchasers in cities where home prices and loan sizes are already high. The supplied report does not provide a forecast for housing sales or prices following the rate increase.
The RBI raised its real GDP growth forecast for 2026-27 by 40 basis points to 7.1%. The revision was driven largely by an increase in the second-quarter growth forecast to 7.2% from 6.4%. The third-quarter forecast was also raised, while the fourth-quarter projection was left unchanged.
At the same time, the central bank increased its inflation forecast for the year from 5% to 5.2%. It revised all quarterly inflation forecasts higher, including a 30-basis-point increase for the first quarter of 2027-28 to 5.6%. Core inflation was raised marginally to 4.4%, while inflation is expected to average 5.8% over the next three quarters.
Energy prices were identified as one of the pressures behind the revised outlook. The RBI now estimates that crude oil will average $95 a barrel in 2026-27, $5 higher than its earlier estimate. The report said global crude prices had risen from $82 a barrel in July to around $116 a barrel in September.
The rate decision will also affect savers, although banks may take a few weeks to revise fixed-deposit rates. The report said lenders were currently flush with funds from a special non-resident Indian deposit scheme. Bajaj Finance, however, had already raised its fixed-deposit rates by up to 40 basis points, taking the rate for senior citizens to as much as 8.15%.
SBI Chairman C.S. Setty described the hike as a response to inflation as well as recognition of the resilience of the Indian economy. SBI Group Chief Economist Soumya Kanti Ghosh said inflation could peak at around 6.8% in November 2026 and that the repo rate could reach about 6% in December. The RBI Governor’s statement, however, identified a further hike or a pause as the possible next steps rather than confirming a future increase.
