The Reserve Bank of India’s Monetary Policy Committee (MPC) is scheduled to announce its decision on key interest rates on October 7, following a three-day meeting that began on October 5. Market participants widely expect a 25 basis points (bps) hike in the repo rate, which would raise it to 5.5 percent. This would be the first rate increase since February 2023, after a series of cuts in 2025, according to livemint.com.
Avinash Gorakshkar, founder of Avinash Mentor Research, outlined three possible outcomes for the MPC decision: a 25 bps hike, no change, or a hike exceeding 25 bps. The market has largely priced in a 25 bps increase, suggesting limited reaction if this occurs. However, if the rate remains unchanged, it could trigger a bull run on Dalal Street, as investors currently expect a hike. The MPC’s decision is closely watched amid rising inflation and uneven transmission of previous policy changes, per livemint.com.
The potential rate hike reflects broader economic shifts, with fresh lending rates rising to 8.61 percent in August from 8.52 percent, while fresh term deposit rates fell to 5.67 percent from 5.85 percent, as reported by bfsi.economictimes.indiatimes.com. External benchmark-linked loans now account for over two-thirds of outstanding floating rate rupee loans, enabling quicker transmission of rate changes. The hike could impact banks and non-banking finance companies by increasing borrowing costs and affecting deposit competition and loan repricing in the second half of FY27.
The RBI MPC’s decision on October 7 will clarify the trajectory of monetary policy amid inflation rising to 4.82 percent in August. The repo rate hike, if confirmed, would mark a policy shift after a cumulative 125 bps cut in 2025. The outcome will influence liquidity and lending rates across India’s financial sector, with investors and institutions awaiting the official announcement, according to bfsi.economictimes.indiatimes.com and livemint.com.