India could be moving closer to another interest rate increase as inflation pressures build ahead of the Reserve Bank of India’s October policy meeting. EY says the case for a 25-basis-point repo rate hike has strengthened because of higher crude oil prices, a weaker rupee and tighter global financial conditions. Persistent increases in consumer and wholesale prices are adding to that pressure even as economic growth remains strong.
Pressure builds on RBI
Recent Consumer Price Index and Wholesale Price Index trends point to continuing inflationary pressure, according to EY, with cost-push and supply-side factors playing an important role. Higher global crude prices and an El Niño-linked deficient monsoon have contributed to rising food prices. Money supply is another concern.
Average M3 growth reached 15.0% between June and August 2026, indicating relatively strong growth in the amount of money circulating through the economy. EY said the chances of both a change in the RBI’s policy stance and a 25-basis-point repo rate increase are high. A weaker rupee and tighter financial conditions globally further strengthen the argument for higher rates.
October decision approaches
Four factors are expected to weigh on the RBI’s Monetary Policy Committee when it meets in October. Those include the recent 25-basis-point US Federal Reserve rate hike, persistent WPI and CPI increases, above-trend M3 growth and India’s relatively comfortable economic growth.
Real GDP expanded by 7.8% in the first quarter of FY27, giving policymakers evidence that economic activity remains strong despite inflation concerns. Such resilience could provide the RBI with more room to tighten monetary policy if it decides price pressures require action.
During its August meeting, the central bank kept the repo rate unchanged at 5.25% and maintained a neutral policy stance. Its next MPC meeting runs from October 5 to October 7, with the interest rate decision due on October 7.
