RBI likely to raise repo rate by 25 bps on October 7 amid inflation concerns

According to the India Meteorological Department, the southwest monsoon rainfall in 2026 reached only 87% of the long-period average, making it the fourth-lowest since 2001. Crude oil prices have remained elevated for much of the year due to geopolitical tensions, particularly the US-Iran conflict, with global inventories below historical five-year averages.

Abhishek Bisen, Head of Fixed Income at Kotak Mahindra AMC, stated that the rate hike could be accompanied by liquidity absorption measures of around ₹1 lakh crore and a cumulative tightening of 50–75 bps over the next 12–15 months, depending on global conditions and inflation trends. He noted that Q1FY27 GDP growth of 7.8% may lead to an upward revision in the RBI’s growth forecast.

Market analysts suggest the rate hike is largely anticipated, with V K Vijayakumar of Geojit Investments estimating it is 99% discounted by the market. He added that market sentiment will depend more on the RBI’s commentary regarding growth and inflation outlook than the hike itself. Vijayakumar also highlighted that banking stocks could benefit from improved interest margins, citing strong credit growth above 19% and FCNR(B) inflows of $127.2 billion.

G Chokkalingam of Equinomics Research warned that any immediate market reaction would likely be short-lived, emphasizing that oil prices above $115 per barrel pose a serious risk to the trade deficit, exchange rate, and corporate earnings. He stressed that sustained high oil prices could deter foreign institutional investor returns, regardless of the RBI’s policy move.