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RBI MPC interest rate decision in focus: The Reserve Bank of India (RBI) is most likely to raise the repo rate by 25 basis points on Wednesday, October 7, following the trend set by other major global central banks, including the US Federal Reserve, the Bank of Japan (BoJ) and the European Central Bank (ECB), which raised rates in September to combat the risk of increased inflation amid elevated oil prices. RBI's first rate hike since February 2023 is coming at a time when risks of inflation and its impact on the overall economic growth have increased significantly. India’s retail inflation rose to a 20-month high of 4.82% in August, coming above the RBI's 4% target midpoint for the third consecutive month since January 2025. In the coming months, inflation could rise further due to the impact of elevated oil prices and a weak monsoon. According to the India Meteorological Department (IMD), southwest monsoon rainfall in 2026 stood at 87% of the long-period average (LPA), making it the fourth-lowest since 2001 and the 13th-lowest since 1901. Meanwhile, crude oil prices have been up for most of the year due to the US-Iran conflict. Oil may remain at higher levels for a longer period, as news reports suggest that global inventories are below their historical 5-year averages. "We expect a 25-bps repo-rate hike in October 2026 with a neutral stance along with measures to absorb durable liquidity, potentially around ₹1 lakh crore, and cumulative tightening of 50–75 bps in the hiking cycle over the next 12-15 months, depending on the evolving global conditions, inflation risks and currency stability," said Abhishek Bisen, Head - Fixed Income, Kotak Mahindra AMC. Bisen underscored that the RBI now faces stronger growth alongside rising inflation and external pressures. "Q1FY27 GDP growth of 7.8% may prompt an upward revision to the RBI’s forecast, while increasing inflation, expensive crude oil, rupee depreciation and narrowing India-US yield differentials strengthen the case for tightening," said Bisen. While a rate hike looks certain, experts believe it is unlikely to have a negative impact on market sentiment, as it appears to be largely discounted by the market. The rate hike itself will not have a significant impact because the market will ultimately depend on actual factors such as oil and crop prices and how they behave. "The RBI will hike the rate by 25 bps on Wednesday. But it will not have any impact on market sentiment, as it is already discounted by the market. This rate hike is, I would say, 99% discounted by the market," V K Vijayakumar, Chief Investment Strategist, Geojit Investments, told Mint. "Sentiment will be influenced by what the RBI chief says. If there is any revision in the growth outlook, inflation, and things like that," said Vijayakumar. In fact, a hike could be positive for the banking stocks as they will expand their interest margin. "Rate hike will be good for financials, particularly banking. They are very attractively valued. The banks' balance sheets are already very good. Credit growth is above 19%, and many of them have the cushion of the $127.2 billion that has come via the FCNR(B), with no CRR requirement on that. All these factors are positive," said Vijayakumar. G Chokkalingam, the founder and head of research at Equinomics Research, believes that there could be an immediate reaction to the rate hike, but it will not have a long-lasting impact beyond a day or two. "The signals are already clear. Oil is above $100 a barrel, and there is a 30% rainfall deficit. The signals for inflationary conditions and a possible rate hike are already clear. So, even if the RBI does not hike rates now, the market may not react significantly because if they don't hike this time and oil prices don't fall, they could increase rates at the next meeting. Therefore, it will not be a major event," Chokkalingam explained. Chokkalingam underscored that the market trajectory will continue to depend on oil prices. "That is the single most important factor. Crop failure will also have an adverse impact, but it will be limited because agriculture accounts for only about 15% of GDP, and two-thirds of the crop area is already irrigated. However, an Indian basket oil price above $115 per barrel is a serious issue because it has multiple effects. It affects the trade deficit, the exchange rate and corporate earnings—everything is linked," said Chokkalingam. "So, if oil prices do not fall over the next three to six months, the market is unlikely to rise. FIIs will also not come back. Oil prices need to correct because cutting the oil import bill by $14 billion per month would be a very significant adjustment," Chokkalingam added. Read all market-related news here Read more stories by Nishant Kumar Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary. Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates. Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.
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