The Reserve Bank of India (RBI) decided to increase its benchmark repo rate by 25 basis points to 5.5%, as India joined the global rate-tightening wave amid mounting inflationary pressures triggered by the raging Middle East conflict. The Indian central bank shifted its stance from ‘neutral’ to ‘calibrated tightening’ and dismissed hopes of near-term rate cuts.
Also read |RBI MPC Meeting 2026: Malhotra & Co hike repo rate by 25 bps to 5.50% for first time in nearly 4 years as inflation pressures build
Driven by escalating energy costs and rising food prices, global inflation is projected to increase sharply prompting monetary policy tightening by major central banks, said RBI Governor Sanjay Malhotra while announcing the decisions taken by the central bank’s Monetary Policy Committee during its October meeting. He noted that the lingering trade uncertainty, rising bond yields in advanced economies and an appreciating dollar are keeping global financial market sentiments nervous and fragile. “Further tightening of global financial conditions, uncertainty about fair valuation of AI stocks, and an elusive resolution of the West Asia conflict pose significant downside risks to the global economic outlook.”
Sensex and Nifty pared some losses after the announcement but remained in the red, following a two-day relief rally that came after a record eight-week losing streak. Analysts flagged the shift in policy stance, while noting that the rate hike was largely expected.
Also read | RBI hikes repo rate by 25 bps: How are rate-sensitive stocks, sectors faring after first increase in nearly 4 years?
The MPC outcome on the rate hike was in line with market expectations. Though most people did not expect the stance change, the markets had already priced in a clear hawkish tone, so the MPC outcome did not cause any substantial market move, said Lakshmanan V, Group President & Head of Treasury at Federal Bank.
What's ahead for Sensex and Nifty?
The RBI’s 25 bps repo rate hike to 5.50%, coupled with the shift to a calibrated tightening stance, signals a meaningful change in the policy cycle, said Ajit Mishra, SVP, Research at Religare Broking. He noted that while the hike itself was largely expected, the change in stance is the more important takeaway, indicating that inflation risks are now taking greater precedence.August CPI at 4.82%, elevated crude prices and weather-related risks have clearly narrowed the room for policy accommodation, the analyst noted Importantly, Q1 FY27 GDP growth at 7.8% suggests that the economy can absorb a modest tightening in financial conditions. “We expect the near-term market impact to remain selective, with rate-sensitive pockets facing pressure, while banks with stronger balance sheets and liability franchises should remain relatively better placed,” the analyst said.
RBI’s decision to hike the repo rate by 25 bps to 5.50% aligns squarely with consensus market expectations, reflecting a prudent front-loading to anchor inflation amid rising crude oil and global yield pressures, said Vaqarjaved Khan, Senior Fundamental Analyst at Angel One. He noted that the explicit pivot in stance to 'calibrated tightening' signals that near-term rate cuts are firmly off the table, prioritizing price stability over growth impulse.
“Market trajectories will continue to be governed by Q2 earnings execution and corporate cash flows rather than this telegraphed monetary adjustment…Overall, this measured move reassures institutional investors on macroeconomic stability without triggering downside panic across rate-sensitive sectors,” he added.
Also read |All LIVE updates on RBI MPC meeting
Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.
Add as a Reliable and Trusted News Source Add Now!
(You can now subscribe to our ETMarkets WhatsApp channel)