RBI MPC begins 3-day meeting as crude, inflation put rate hike back on table

The Reserve Bank of India’s Monetary Policy Committee (MPC) begins its three-day meeting today, with the central bank facing a potentially difficult policy choice: keep rates steady or begin tightening monetary policy for the first time since 2023.

The RBI has held the repo rate at 5.25 per cent for four consecutive meetings, after delivering cumulative rate cuts of 125 basis points in 2025. But the inflation landscape has changed sharply, with rising crude oil prices and persistent price pressures putting a rate hike back on the agenda.

The MPC’s policy decision is due on October 7, and market expectations are increasingly tilted towards a 25-basis-point hike.

Crude crosses $100: RBI’s biggest headache?

The latest surge in oil prices is complicating the RBI’s inflation outlook. Brent crude was around $101.26 a barrel, while crude oil was trading near $89.98 a barrel at the time of reporting.

Higher oil prices can feed directly into fuel costs and indirectly raise transportation, manufacturing and logistics expenses, putting fresh pressure on headline inflation.

Union Bank of India expects the RBI to raise the repo rate by 25 basis points this month and potentially deliver another one or two hikes during FY27.

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The bank sees the repo rate potentially moving to 5.75%-6%, accompanied by a hawkish policy message focused on containing inflation.

Four factors RBI will watch

According to EY, four major factors are likely to shape the October policy decision: The US Federal Reserve’s recent 25-basis-point rate hike, India’s relatively comfortable growth outlook, persistent inflationary pressures reflected in CPI and WPI and sustained above-trend growth in broad money supply (M3).

EY believes the chances of both a change in the RBI’s policy stance and a 25-basis-point rate hike are high.

Inflation warning adds to pressure

The inflation outlook is emerging as the key risk for the central bank.

At its August meeting, the MPC had retained its neutral stance and kept the repo rate unchanged at 5.25 per cent, citing uncertainties around the monsoon, El Niño, geopolitical tensions and global trade policies.

RBI Governor Sanjay Malhotra had said headline inflation could rise because of supply-side pressures from food and fuel, while core inflation remained relatively moderate.

But SBI Research has sounded a more cautious note, warning that CPI inflation could cross 6.5 per cent in the coming months before easing below 6 per cent in early 2027.

SBI Research has recommended two 25-basis-point hikes, one in October and another in December, followed by a pause to assess incoming economic data.

The big question: Is RBI shifting gears?

The October MPC meeting could therefore mark a significant turning point for Indian monetary policy.

After aggressively cutting rates in 2025 and maintaining a neutral stance through recent meetings, the RBI may now have to balance growth against a fresh inflation shock.

A 25-basis-point hike would take the repo rate to 5.50 per cent and signal that the central bank is willing to sacrifice some monetary accommodation to prevent inflation expectations from becoming entrenched.

All eyes are now on October 7 — when the RBI will reveal whether the inflation threat is strong enough to bring rate hikes back into India’s monetary policy playbook.