RBI may deliver a major shock before Diwali; loan EMIs could rise by this much...

Market speculation regarding interest rates has intensified ahead of the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) meeting in October. Eight out of ten economists surveyed by *Business Standard* have projected a 25-basis-point hike in the repo rate. This could raise the repo rate from 5.25% to 5.50%.

**MPC meeting scheduled for October 5–7**
The meeting of the RBI's six-member MPC is scheduled for October 5–7, 2026. The policy announcement will be made on October 7 following the meeting. The RBI has kept the repo rate steady at 5.25% during the last four meetings. Prior to this, the repo rate had been cut by a total of 125 basis points in 2025.

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If a 25-basis-point hike occurs in October, it will mark the first time the RBI raises the repo rate since February 2023. In February 2023, the repo rate was raised by 25 basis points to 6.50%.

**Inflation raises concerns for the RBI**
Inflation is a major factor behind the likelihood of a repo rate hike. Retail inflation rose to 4.82% in August 2026, remaining above the RBI's medium-term target of 4% for the third consecutive month. Rising food and energy prices have added to inflationary pressure.

Wholesale inflation also increased to 9.92% in August, up from 9.78% in July. There are concerns that inflationary pressure could rise further due to high crude oil prices and geopolitical tensions.

**Robust Growth Also a Key Factor in RBI's Decision**
On the other hand, the Indian economy's growth remains relatively robust. Consequently, the RBI faces the challenge of balancing the need to control inflation with the need to sustain economic activity. For this reason, economists surveyed by *Business Standard* have projected a 25-basis-point hike in October.

**Impact of the Rupee and Foreign Interest Rates**
The Indian rupee has depreciated by approximately 6% against the US dollar this year. Changes in interest rates in major economies, including the US, have made the interest rate differential between India and the US a crucial factor for the RBI. This can influence foreign investment flows and the stability of the rupee.

**What Will Be the Impact on Loans and EMIs?**
If the RBI raises the repo rate, the cost of borrowing within the banking system could increase. This could specifically affect repo-linked floating-rate home loans and other types of credit. However, the actual change in EMIs will depend on the specific bank's interest rates and the terms of the loan.

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