Will RBI raise interest rates in October? Here’s what experts have to say
Major central banks such as US Federal Reserve, Bank of Japan and the European Central Bank have raised interest rates in the last few days. In India too, the rising inflation may be a cause of concern for the Reserve Bank
- Sep 18, 2026,
- Updated Sep 18, 2026 6:08 PM IST
Are lending rates set to rise soon? That’s a question many will have on their minds after several major central banks raised their interest rates recently. Will the Reserve Bank of India (RBI) follow suit and raise the repo rate, that has been unchanged at 5.25% since the last cut in December 2025?
The US Federal Reserve on September 16 raised its interest rates by 0.25% to a range of 3.75-4.0% from 3.5-3.75%, citing too high inflation. This was its first rate hike in three years. Thousands of miles away, Japan’s central bank raised its main interest rate on Friday to 1.25% from 1%. That’s a level not seen since 1995. A week earlier, the European Central Bank had also raised its interest rates by a quarter percentage point.
While, Bank of England on September 17 left interest rates unchanged, it too has signalled that they may have to go up should the US-Iran conflict continue for some time. The conflict has particularly driven up energy prices and that is driving broader inflation higher.
Back home in India, the CPI (consumer price index) inflation rose in August to 4.82% from 4.45% in July 2026. Food inflation was at 5.95%, compared with 5.52% in the previous month. Wholesale inflation too has risen; August number touched 9.92%.
With crude oil prices once again trading above $100 per barrel, there will be a pressure on India’s import bill, considering the country imports a bulk of it. A weak monsoon will also weigh on farm prices and the wider rural economy. At the same time, GDP growth has remained strong; it grew better-than-expected 7.8% in April-June.
These circumstances could strengthen the case for a repo rate hike by the RBI say some analysts.
Pranjul Bhandari, the chief India economist at HSBC maintains the long held view that there will be two 25 basis points (0.25%) rate hikes in the October and December monetary policy committee meetings.
“Acting early signals a response to prospective inflation, strengthening credibility. That can do more than the mechanical impact of a 25 bps hike as it anchors expectations, supports the currency, and reduces the inflation risk premium,” Bhandari noted.
Prateek Ancha, chief economist at Axis Capital, also expects the RBI to deliver rate hikes in October and December. In fact, he feels the Fed’s move to raise rates has “complicated the policy calculus,” and a third rate hike is also likely. But, when it materialises will depend on incoming inflation and external-sector dynamics, he added.
An important thing for the RBI to consider currently is the abundant liquidity in the system currently, after banks were able to raise over $127 billion during the special forex swap window that the RBI had announced in June to shore up the foreign exchange reserves.
The RBI has already undertaken open market operations (OMO) and variable rate reverse repo (VRRR) auctions to mop up some of the excess liquidity, but Ancha feels more may be needed.
“Despite recent liquidity draining measures, including durable measures like sell-buy swaps and Rs 1 lakh crore in OMO sales, banking system liquidity remains elevated at roughly Rs 10 lakh crore. We estimate the RBI may need to absorb another Rs 4 lakh crore before overnight rates consistently track the policy rate making further liquidity operations a prerequisite for any policy rate increase,” he stressed.
Minutes of the previous MPC meeting were hawkish and the RBI should follow through with rate hikes as CPI inflation risk has materialised and GDP growth continues to remain strong, noted Murthy Nagarajan, head – fixed income, Tata Asset Management.
“CPI inflation is expected to be above 5% for the current financial year and around 4.5-5.0% for the next financial year. Given a strong economy and CPI inflation averaging above 5% in the coming months, we expect rate hikes in each of the policy meetings from RBI taking the repo rate to 6% by March 2027,” he said.
Madhavi Arora, lead economist at Emkay Global Financial Services also feels a rate hike of 25 bps in the next MPC meeting in October is likely, following recent spike in energy prices, firmer than expected GDP growth and the upside surprise in core CPI inflation in August being the final tipping point.
However, India Ratings and Research still expects the RBI MPC to keep policy rates on hold in October.
“At present, the RBI is in a strange situation of liquidity surplus and increasing inflation (broadly in line with their assessment as per August 2026 monetary policy). The liquidity condition in the banking system will be a leading indicator of the RBI’s forthcoming monetary policy action,” it said.
Vikram Chhabra, senior economist at 360 ONE Asset opined that the RBI may first absorb the excess liquidity through additional OMO sales, beyond those already announced and forex sell-buy swaps. However, if inflationary pressures continue to rise, the “odds of a rate hike by fourth quarter FY27 are likely to increase.”
Are lending rates set to rise soon? That’s a question many will have on their minds after several major central banks raised their interest rates recently. Will the Reserve Bank of India (RBI) follow suit and raise the repo rate, that has been unchanged at 5.25% since the last cut in December 2025?
The US Federal Reserve on September 16 raised its interest rates by 0.25% to a range of 3.75-4.0% from 3.5-3.75%, citing too high inflation. This was its first rate hike in three years. Thousands of miles away, Japan’s central bank raised its main interest rate on Friday to 1.25% from 1%. That’s a level not seen since 1995. A week earlier, the European Central Bank had also raised its interest rates by a quarter percentage point.
While, Bank of England on September 17 left interest rates unchanged, it too has signalled that they may have to go up should the US-Iran conflict continue for some time. The conflict has particularly driven up energy prices and that is driving broader inflation higher.
Back home in India, the CPI (consumer price index) inflation rose in August to 4.82% from 4.45% in July 2026. Food inflation was at 5.95%, compared with 5.52% in the previous month. Wholesale inflation too has risen; August number touched 9.92%.
With crude oil prices once again trading above $100 per barrel, there will be a pressure on India’s import bill, considering the country imports a bulk of it. A weak monsoon will also weigh on farm prices and the wider rural economy. At the same time, GDP growth has remained strong; it grew better-than-expected 7.8% in April-June.
These circumstances could strengthen the case for a repo rate hike by the RBI say some analysts.
Pranjul Bhandari, the chief India economist at HSBC maintains the long held view that there will be two 25 basis points (0.25%) rate hikes in the October and December monetary policy committee meetings.
“Acting early signals a response to prospective inflation, strengthening credibility. That can do more than the mechanical impact of a 25 bps hike as it anchors expectations, supports the currency, and reduces the inflation risk premium,” Bhandari noted.
Prateek Ancha, chief economist at Axis Capital, also expects the RBI to deliver rate hikes in October and December. In fact, he feels the Fed’s move to raise rates has “complicated the policy calculus,” and a third rate hike is also likely. But, when it materialises will depend on incoming inflation and external-sector dynamics, he added.
An important thing for the RBI to consider currently is the abundant liquidity in the system currently, after banks were able to raise over $127 billion during the special forex swap window that the RBI had announced in June to shore up the foreign exchange reserves.
The RBI has already undertaken open market operations (OMO) and variable rate reverse repo (VRRR) auctions to mop up some of the excess liquidity, but Ancha feels more may be needed.
“Despite recent liquidity draining measures, including durable measures like sell-buy swaps and Rs 1 lakh crore in OMO sales, banking system liquidity remains elevated at roughly Rs 10 lakh crore. We estimate the RBI may need to absorb another Rs 4 lakh crore before overnight rates consistently track the policy rate making further liquidity operations a prerequisite for any policy rate increase,” he stressed.
Minutes of the previous MPC meeting were hawkish and the RBI should follow through with rate hikes as CPI inflation risk has materialised and GDP growth continues to remain strong, noted Murthy Nagarajan, head – fixed income, Tata Asset Management.
“CPI inflation is expected to be above 5% for the current financial year and around 4.5-5.0% for the next financial year. Given a strong economy and CPI inflation averaging above 5% in the coming months, we expect rate hikes in each of the policy meetings from RBI taking the repo rate to 6% by March 2027,” he said.
Madhavi Arora, lead economist at Emkay Global Financial Services also feels a rate hike of 25 bps in the next MPC meeting in October is likely, following recent spike in energy prices, firmer than expected GDP growth and the upside surprise in core CPI inflation in August being the final tipping point.
However, India Ratings and Research still expects the RBI MPC to keep policy rates on hold in October.
“At present, the RBI is in a strange situation of liquidity surplus and increasing inflation (broadly in line with their assessment as per August 2026 monetary policy). The liquidity condition in the banking system will be a leading indicator of the RBI’s forthcoming monetary policy action,” it said.
Vikram Chhabra, senior economist at 360 ONE Asset opined that the RBI may first absorb the excess liquidity through additional OMO sales, beyond those already announced and forex sell-buy swaps. However, if inflationary pressures continue to rise, the “odds of a rate hike by fourth quarter FY27 are likely to increase.”