Reserve Bank of India signals potential rate hikes and loan reset changes

The Reserve Bank of India (RBI) has signaled potential shifts in monetary policy due to rising inflation risks from food and fuel prices. Minutes from the Monetary Policy Committee meeting indicate that if inflationary pressures become broad-based, the central bank may raise the policy repo rate during the third quarter of the current fiscal year.

RBI Governor Sanjay Malhotra emphasized the need for vigilance against supply-side shocks, noting that rising costs of essential inputs could cause inflation to become unanchored. Deputy Governor Poonam Gupta also highlighted the necessity of potential rate hikes to manage inflation trajectories, with headline inflation (CPI) projected at 5 percent for the 2027 financial year.

Additionally, the RBI has proposed a change to how floating-rate loans are managed. If approved, interest rates for these loans would reset every three months starting April 1, 2027, rather than the current annual cycle. This change would cause EMIs to adjust more frequently in response to rate fluctuations, though fixed-rate personal and auto loans would remain unaffected.