The Reserve Bank of India could raise the repo rate by 25 basis points each in October and December, taking it to 6% by the end of 2026, as inflation risks and surplus banking-system liquidity increase pressure for tighter monetary policy.
The Reserve Bank of India may raise its benchmark repo rate twice before the end of 2026, according to analysts cited in the report. The Monetary Policy Committee could implement a 25-basis-point increase in October followed by another 25-basis-point hike in December, which would take the repo rate from the current 5.25% to 6%. These are analyst expectations rather than an announced RBI decision.
The expectations come as inflationary pressures strengthen. India’s retail inflation increased to 4.82% in August from 4.45% in July, while economists expect the September reading to move closer to 5%.
Crude oil prices are another major risk. Systematix Group said inflation could move above the RBI’s earlier projections if crude remains in the $90–110 per barrel range. Higher energy costs can increase costs for producers and potentially feed into consumer prices. Separately, Kotak Securities has said sustained crude prices above $100 could push retail inflation towards 5.8–6% by the next quarter.
Surplus liquidity in the banking system is also influencing expectations around monetary policy. According to HSBC estimates cited by India Today, foreign currency inflows, particularly through the special FCNR(B) deposit scheme, have contributed to a core liquidity surplus of around ₹15 trillion.
The RBI has already been taking steps to absorb surplus funds through open market operations and variable rate reverse repo auctions. Analysts expect these measures to intensify, with another ₹4 lakh crore potentially being withdrawn through VRRR operations and other instruments, in addition to nearly ₹2.5 lakh crore already absorbed.
Expectations of tighter monetary policy are also visible in the bond market. Reuters reported that bets on an October rate increase have strengthened as the RBI withdraws liquidity, while elevated oil prices remain a concern for inflation and the rupee.
For now, the repo rate remains unchanged at 5.25%. Whether the projected October and December increases materialise will depend on the Monetary Policy Committee’s decisions and incoming inflation, liquidity and broader economic data.
