RBI Governor Sanjay Malhotra lifted the repo rate to 5.5% on Wednesday, the first increase since February 2023, after the monetary policy committee voted unanimously.
The hike comes amid a 5.1% headline inflation rate recorded last month, a sharp rise in oil prices, and a 7% depreciation of the rupee against the dollar.
In his address, Malhotra warned that global inflation would keep climbing and that trade uncertainty and the Iran war could disrupt supply chains, but he underscored that the domestic economy remains resilient.
With the rate jump, the RBI has shifted from a neutral stance to calibrated tightening, signalling that rate cuts are off the table and that a further hike could follow if inflationary pressures persist. The central bank also raised its core inflation forecast to 4.4% from 4.3% and lifted the GDP growth outlook to 7.1% from 6.7%.
Suraj Mehta, Chief Strategy Officer at HNGIL, said the 25‑basis‑point rise marginally increases capital costs for manufacturers already wrestling with higher energy prices, yet he added that domestic demand remains robust. Small‑scale textile entrepreneur Rajesh Sharma in Varanasi said the hike will make bank loans pricier, but he hopes the RBI’s focus on easing supply‑side constraints will keep production moving.