Reserve Bank of India raises rate to 5.50% for first time since 2023 — CNBC

On October 7, the Reserve Bank of India raised its key repo rate by 25 basis points to 5.50%. This is the first rate increase since 2023 and its highest level in a year. The decision met the expectations of economists surveyed by Reuters.

Inflation and market expectations

Consumer inflation in India has been rising for the tenth consecutive month and reached 4.8% in August. This is above the Reserve Bank of India’s medium-term target of 4%, CNBC reports.

HSBC and Goldman Sachs expect India’s central bank to raise the rate again in December. HSBC said markets need a convincing rate increase that would demonstrate the regulator’s ability to tighten policy again to curb inflation. In the bank’s view, if this move is perceived as too soft amid rising inflation, it could harm India’s attractiveness to global investors.

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Risks to prices and growth

India, which remains the world’s fastest-growing major economy, depends on imports for nearly 85% of the fuel it needs. Before the war in Iran, one of the key routes for its supplies was the Strait of Hormuz. The country also faces the risk of El Niño: according to the World Bank, the period from June through August was India’s fourth driest since 1960, which could lead to higher food prices.

The World Bank forecasts that India’s economic growth will slow to 7.1% in the financial year ending in March 2027, after 7.8% a year earlier. At the same time, in the quarter ending in June, the country’s economy grew by 7.8%, exceeding expectations.