India's central bank raises rates for the first time since 2023 and rules out cuts for now

India's central bank raised interest rates on Wednesday for the first time since early 2023 and said it is done cutting for now, as oil above $100 a barrel, a weaker rupee and a poor monsoon push inflation back up.

The Reserve Bank of India's six-member Monetary Policy Committee voted unanimously to lift its main lending rate, the repo rate, by a quarter point to 5.5% from 5.25%. The marginal standing facility rate and the bank rate, which sit at the top of the RBI's rate corridor, rose to 5.75%. Governor Sanjay Malhotra announced the decision at 10 a.m. in Mumbai, or 12:30 a.m. Eastern time.

The hike itself was expected: 11 of 12 bank economists in one pre-meeting survey had forecast it. The bigger signal was the language. The committee dropped its neutral stance for what it called "calibrated tightening." In the same survey, seven of 10 economists who answered had expected the stance to stay neutral. Malhotra said that, given current conditions, rate cuts are off the table in the near term and the committee's next move can only be another increase or a pause.

It is the first rate increase under Malhotra, who took over in December 2024 and then oversaw 125 basis points of cuts during 2025. The repo rate had been 5.25% since December 2025. The RBI last raised rates in February 2023, taking the repo rate to 6.5%.

"The RBI's hike acknowledges that cyclical inflation risks are no longer benign. A change in stance also underscored the RBI MPC's hawkish intent," said Radhika Rao, senior economist at DBS Bank.

Why the RBI moved now

Consumer prices rose 4.8% in August from a year earlier, up from 4.5% in July and above the RBI's 4% target, which allows a range of 2% to 6%. Malhotra said the inflation outlook is "not benign like last year." Food price increases have spread to more items, with notable jumps in sugar and onions, and a weak southwest monsoon could hurt the winter-sown crop.

Energy is the other pressure point. India imports most of its oil, and Brent crude was at $101.62 a barrel on Wednesday morning in Asia, up 1% on the day, well above the $85 the RBI had assumed for this fiscal year. A weaker rupee makes those imports costlier still. The currency was at 96.44 per dollar, near its weakest in more than two months, after record foreign selling of Indian stocks this year.

Higher U.S. yields have added to the strain. India's 10-year government bond yielded 7.22%, against 5.31% on the 10-year Treasury, a gap of about 1.9 percentage points by TickerGrove's calculation. A narrower gap makes Indian bonds less attractive to foreign investors and can weigh on the rupee.

Growth gives the RBI room

The central bank is tightening into a strong economy. Output grew 7.8% from a year earlier in the April-June quarter, and the RBI raised its growth forecast for the fiscal year ending in March to 7.1% from 6.7%. Malhotra said private consumption has held up and investment remains strong, though he flagged softer spots such as domestic air travel.

That combination is what changed since August, when the committee held rates and kept a neutral stance. At that meeting the RBI projected inflation of 5% for the fiscal year, peaking at 5.9% in the October-December quarter, and said it needed more clarity on the path of prices before acting. Malhotra said on Wednesday that the near-term outlook still points to supply-side pressure.

What markets did

Investors had largely priced in the quarter-point move. The Nifty 50 index was down about 0.7% at 22,614 in morning trading in Mumbai, after eight straight weekly declines. The 10-year bond yield rose about 3 basis points from Tuesday's close of 7.19%, and the rupee was little changed, according to cnbc.com market data shortly before 1 a.m. Eastern time.

How far this could go

Several forecasters expect more. BofA Securities said before the meeting that it expected another 75 basis points of increases after Wednesday's, which would take the repo rate to 6.25% by the first half of 2027. Union Bank of India sees the rate reaching 6% by the end of the fiscal year in March. Economists at another large lender said the cycle could stop at 50 basis points if global energy prices fall sharply.

The move puts India alongside other Asian central banks that have started tightening again, including the Bank of Japan and the Bank of Korea, as well as Australia's central bank.