Reserve Bank of India raises repo rate to 5.50 percent

The Reserve Bank of India (RBI) has implemented its first repo rate hike in 44 months, raising the policy rate by 25 basis points from 5.25 percent to 5.50 percent. The Monetary Policy Committee (MPC) voted unanimously for the increase, citing the need to combat rising inflation—which reached 4.4 percent—and addressing economic impacts from geopolitical conflicts in West Asia.

To further tighten liquidity and support the Indian rupee against the US dollar, the RBI has introduced several measures. These include increasing the minimum daily maintenance requirement under the cash reserve ratio (CRR) from 90 percent to 99 percent and lowering the cap on currency derivative contracts from $100 million to $5 million. Additionally, the central bank has mandated that commercial banks maintain specific foreign exchange reserves for new contracts signed after November 1, 2026.

These actions represent a shift toward a “dear money policy” intended to curb money supply and reduce demand-driven inflation. While the measures aim to stabilize the currency and prices, they are expected to increase borrowing costs for businesses and consumers, potentially slowing investment and consumption in the short term.