Economists and bank officials believe the Reserve Bank of India (RBI) may raise the repo rate by 0.25 percent at its October monetary policy meeting amid inflationary pressures stemming from the deepening West Asian crisis. According to a survey of 16 economists and senior bank officials, if the central bank raises rates in the next policy review, it would signal a major change in interest rate policy. Notably, there was a rate cut in 2025 followed by a long hiatus. The last hike in the repo rate was in February 2023, when the RBI raised the rate by 0.25 percentage points to 6.50 per cent. After this, it kept rates unchanged through 2023-24 and then started a cycle of cuts in 2025. Currently RBI’s policy repo rate is 5.25 percent.

inflationary pressure

Kanika Pasricha, chief economic adviser at Union Bank of India, said the pace of rate hikes by global central banks, rising inflation risks and strong growth momentum provide policy room for interest rate hikes. Deepti Deshpande, Chief Economist at CRISIL, said since the last policy, inflationary pressures have increased further due to resurgence of conflicts in West Asia and rise in energy and commodity prices. If this pressure continues, further rate hikes are expected. Most of the experts surveyed see the possibility of an interest rate hike with a tightening stance in the next policy review on Wednesday. However, opinions are divided on whether there will be any change in policy stance.

Interest rates may increase

Larsen & Toubro (L&T) Group Chief Economist Satchidanand Shukla believes the RBI will once again prefer to maintain the status quo. He argued that the RBI may wait before raising rates as there is currently no concrete evidence of demand-driven inflation in the economy. Experts widely believe that the repo rate could be hiked at least twice in fiscal 2026-27, while many experts expect two to three hikes throughout the fiscal year.

Increase in core inflation

Rising core inflation may require the central bank to gradually normalize its monetary policy stance, experts said. Gaura Sengupta, economist at IDFC First Bank, said a gradual normalization of policy is necessary due to high core inflation. A rate hike is necessary to ensure that real rates do not turn negative in the coming quarters. Expert opinion on the policy stance is divided between ‘no change’ and ‘measured tightening’, while some experts are also in favor of ‘withdrawal of liberal stance’. Amid higher crude oil prices, food inflation risks and price pressures, experts expect the RBI to raise its CPI (retail) inflation forecast for the financial year 2026-27.

How much can GDP be?

ICRA Chief Economist Aditi Nair said the recent rise in crude oil prices above $100 per barrel could lead to an increase in the retail selling price (RSP) of petrol and diesel, further exacerbating price pressures. This would require an upward revision to the CPI inflation estimate. On economic growth, experts mostly expect the RBI to revise its GDP growth forecast for the financial year 2026-27. This view is supported by better-than-expected economic activity in the first half of the fiscal year, although some expect no change. Radhika Rao, senior economist and executive director at DBS Bank, expects a modest upward revision to growth above 7 percent. In its August monetary policy, the central bank projected real GDP growth at 6.7 percent for 2026-27.