RBI Set to Hike Repo Rate Twice Within Three Months Amid Rising Inflation

The Reserve Bank of India (RBI) is likely to raise its benchmark interest rate by 25 basis points next month and again in December, according to a report by SBI Research. The move aims to counter rising crude prices, persistent external shocks, and signs of broader inflationary pressures.

The RBI's Monetary Policy Committee (MPC) will meet on October 5-7 to consider the interest rate hike. If implemented, the increase would take the repo rate from 5.25% to 5.50%.

Higher loan interest rates and EMIs are expected as a result of the repo rate hike. Financial institutions may increase fixed deposit (FD) rates in response to the higher borrowing cost. The report notes that the RBI's approach in 2022, where it raised the repo rate by 25 basis points twice, is a precedent for this decision.

Experts warn that inflation is becoming more widespread, citing the recent surge in crude oil prices and input costs rising faster than output prices in sectors such as petroleum, beverages, pharmaceuticals, and electronics. The RBI may pass on these increased costs to consumers through higher loan interest rates.