RBI Raises Repo Rate by 25 Basis Points: Borrowing Costs to Rise for Home Loan Customers and Small Businesses

Mumbai, October 7 (Daily Kiran) : The Reserve Bank of India (RBI) has announced a 25 basis point increase in the repo rate, raising it to 5.50%. This decision is expected to make borrowing more expensive for home loan customers and small businesses. Top bankers and economists indicated that the move aims to manage inflationary pressures while maintaining robust economic growth.

Ajay Kumar Srivastava, Managing Director and CEO of Indian Overseas Bank, noted that higher interest rates will naturally affect borrowers, particularly those seeking home loans and small business financing. He emphasized the need for banks to balance the impact of increased rates on customers while supporting the demand for productive loans.

Srivastava described the RBI’s decision as a “balanced and precautionary step,” taken in light of rising inflation risks stemming from energy prices, a weak monsoon, and the El Niño phenomenon. He reiterated that the impact of higher rates on borrowers, especially home loan customers, will be significant.

Sakshi Gupta, chief economist at HDFC Bank, pointed out that the RBI has initiated a cycle of rate increases in line with major global central banks. This latest decision comes amid growing inflation risks domestically, even as economic growth remains strong. Gupta remarked that the shift in monetary policy towards “calibrated tightening” suggests that this rate hike marks the beginning of a broader cycle of increases rather than a one-time adjustment.

Furthermore, she mentioned that the RBI’s stance and revised macroeconomic forecasts indicate a tendency towards tightening. The growth rate estimate has been raised by 40 basis points to 7.1%, while the inflation forecast for the fiscal year 2027 has been increased to 5.2%.

Madan Sabnavis, chief economist at Bank of Baroda, also cited inflation concerns as the primary reason behind the 25 basis point hike. He anticipates an additional tightening of 50 basis points during the current year, with another increase likely in December, followed by another in February.

Sabnavis highlighted an interesting aspect of this policy: the RBI did not announce any specific liquidity measures, suggesting that the current approach to gradually managing liquidity through Variable Rate Reverse Repo (VRRR) will continue.