In his post-policy handle, RBI Governor Sanjay Malhotra mentioned the choice mirrored difficult geopolitical developments, even because the Indian financial system remained sturdy.
He mentioned cuts had been “off the desk for now”, with the central financial institution more likely to both increase charges additional or preserve them unchanged to comprise inflation.
The RBI tasks Client Value Index (CPI) inflation at 5.2% for 2026-27 – larger than the 5% estimated earlier – to account for worth stress attributable to climate disruptions, weak monsoon and excessive volatility in worldwide oil costs.
Crude oil costs are hovering above $100 (£75.33) a barrel leading to India having to pay much more because the rupee has fallen near its all-time lows towards the greenback. The nation imports round 90% of its crude oil and 50% of its gasoline wants.
The RBI final raised charges in February 2023, marking the tip of its post-pandemic tightening cycle. Throughout most of 2025, it minimize charges to help financial development earlier than conserving coverage unchanged from December 2025 till in the present day’s improve.
The speed improve is in step with expectations of economists who say that rising inflation makes a compelling case for it, particularly because the financial system has displayed sufficient resilience to soak up its affect with out hurting development.
It is also in step with what’s taking place globally. The US Federal Reserve has aggressively elevated charges since 2022 pushing treasury bond yields larger. This, coupled with a powerful greenback, has prompted buyers to drag cash from rising markets akin to India searching for larger returns in greenback belongings.
On Wednesday, the RBI additionally upgraded its development outlook after the financial system outperformed expectations within the first quarter – the gross home product (GDP) development in the present monetary yr is projected at 7.1%, up by 40 foundation factors from earlier estimate.
Governor Malhotra mentioned the RBI would “attempt for worth and monetary stability as each are important for sustainable development in the long term”.
The RBI additionally signalled that it might use a mixture of liquidity administration instruments to maintain liquidity in test, whereas persevering with to curb extreme volatility within the rupee.
Anuj Puri, chairman of actual property consulting agency ANAROCK Group, mentioned the RBI fee hike could put stress on client sentiment and discretionary spending. “The festive season is a key interval for housing demand, and a rise in borrowing prices will have an effect on purchaser sentiment,” he mentioned.