RBI raises repo rate by 25 points in first hike in four years, loan EMIs may rise | India News

The Reserve Bank of India (RBI) raised its benchmark repo rate by 25 basis points to 5.5% on Wednesday, marking its first rate hike in nearly four years as inflationary pressures build despite resilient economic growth.The six-member Monetary Policy Committee (MPC) unanimously voted to raise the policy rate and shifted its stance to “calibrated tightening” from “neutral”, signalling a greater focus on containing inflation.Also Read | Global debt, AI risks among 5 financial stability threats, says RBI Governor MalhotraRBI flags inflation concerns Delivering the Monetary Policy Statement, RBI Governor Sanjay Malhotra said, “The MPC noted that the global context, on account of geopolitical developments, remains challenging. Nonetheless, the Indian economy has been strong and the economic momentum remains broad-based. Moreover, the economy is expected to remain resilient”.Malhotra also flagged concerns over the inflation outlook, saying, “It is further observed, in light of the available data, that it is clear that inflation and its outlook are not benign as they were last year. With headline CPI inflation expected to average almost 5.8 % in the next three quarters, including this, and core inflation projected at 4.4% for this financial year.” The MPC's three-day meeting, being held from October 5 to 7, comes after it kept the repo rate unchanged at 5.25 per cent in August and retained a neutral stance, citing the need for greater clarity on the inflation outlook and evolving growth-inflation dynamics. Also Read | A rate hike beckons but what else | Number TheoryRBI raises growth forecast despite global risksAnnouncing the outcome of the RBI Monetary Policy Committee meeting, Malhotra said geopolitical tensions, elevated international commodity prices, additional frictions in global trade and tightening global financial conditions could weigh on India’s growth outlook.“Taking all these factors into consideration, real GDP growth for this year is projected at 7.1 percent, with Q2 at 7.2 percent, Q3 at 6.9, and Q4 at 6.8 percent,” Malhotra said.He said the 40-basis-point upward revision reflected the strength of economic activity despite significant global challenges.Malhotra said India’s real GDP growth stood at 7.8% in the first quarter, supported by resilient private consumption and strong investment activity, which rose by nearly 12%. Net exports also made a positive contribution to growth.“We exhibited resilience amidst global headwinds, as evident from real GDP growth of 7.8 per cent in Q1,” Malhotra said.High-frequency indicators for the second quarter suggest that economic activity has maintained momentum, although growth has moderated somewhat from the previous quarter, he said.Manufacturing activity has remained steady despite cost pressures, while services activity has stayed broad-based, supported by stronger domestic and external demand. Both manufacturing and services PMI remained in the expansion zone in Q2, although the pace of expansion slowed from Q1.Private consumption also remained broadly resilient, aided by discretionary spending, while fixed investment continued to show strength.First repo rate hike since February 2023The last repo rate hike was in February 2023, when the RBI raised the rate by 25 basis points to 6.50 per cent. The central bank kept the rate unchanged through 2023-24 before beginning its rate-cut cycle in 2025.The policy repo rate currently stands at 5.25 per cent.A majority of participants in a PTI poll expected a 25-basis-point rate hike along with a hawkish tone at Wednesday’s policy review. However, opinions remain divided on whether the RBI will also change its policy stance.Most experts said a rate increase was imminent, while some felt the central bank may hold off on a hike in the upcoming review.The government has mandated the RBI to keep consumer price index (CPI)-based retail inflation at 4 per cent, with a tolerance band of 2 percentage points on either side.Retail inflation accelerated to 4.82 per cent in August from 4.45 per cent in July.