RBI Repo Rate 2026: 2 More Rate Hikes Likely as Inflation Risks Rise, Report Says

The Reserve Bank of India (RBI) could raise the repo rate in each of its next two monetary policy meetings, taking the policy rate closer to 6%, according to an ICICI Bank report. The assessment comes after the Monetary Policy Committee (MPC) raised the repo rate by 25 basis points to 5.50% and shifted its stance from “neutral” to “calibrated tightening”. The report expects the RBI to remain focused on inflation and liquidity management while closely monitoring global financial conditions and capital flows.

RBI Repo Rate Could Reach 6%

According to ICICI Bank's assessment, the RBI may deliver back-to-back rate hikes over its next two policy meetings. The report currently estimates a terminal repo rate of around 6%. The latest 25-basis-point hike took the repo rate from 5.25% to 5.50%. It was the first increase in nearly four years and marked a shift towards a tighter monetary policy approach. RBI Repo Rate Hike: Will Your EMI Increase? What Governor Sanjay Malhotra’s Statement Means for Borrowers.

The report noted that the word “calibrated” in the RBI's new policy stance indicates that future decisions will remain data-dependent. The central bank could either hike rates or pause depending on the trajectory of inflation and economic growth.

RBI Steps Up Liquidity Management

Liquidity management is expected to remain another key part of the RBI's strategy. The banking system has been operating with a sizeable surplus, which has kept short-term market rates below the policy repo rate. The RBI has been using tools including variable rate reverse repo (VRRR) auctions, open market operations (OMOs), foreign exchange swaps and spot-market interventions to manage excess liquidity. The central bank announced a 29-day VRRR auction for ₹2 lakh crore on October 8 to absorb surplus liquidity from the banking system. System liquidity was estimated at around ₹4.99 lakh crore as of October 7.

Inflation Remains a Key Concern

ICICI Bank's report said the expected rate hikes are linked to the changing inflation outlook. The report sees headline inflation moving closer to the upper end of the RBI's tolerance range. The RBI has raised its FY27 CPI inflation forecast to 5.2%, from an earlier projection of 5%. At the same time, it increased its FY27 GDP growth forecast to 7.1% from 6.7%. Recent price pressures have largely been attributed to food and energy-related supply-side factors rather than broad-based demand pressures. The report noted that inflation remains concentrated in selected categories. RBI Raises Repo Rate by 25 Basis Points to 5.50% Amid Rising Inflation Pressures.

RBI May Need Further Liquidity Operations

ICICI Bank expects the RBI to continue using liquidity-management measures alongside its rate policy. The report said the central bank may need to adjust liquidity to keep the surplus at around 0.5-1% of net demand and time liabilities. It also expects tools such as foreign exchange operations and OMOs to remain part of the RBI's toolkit. The objective would be to ensure that domestic interest rates move in line with the broader tightening in global bond yields.

The RBI has indicated that the current liquidity surplus is unlikely to persist for a prolonged period. Governor Sanjay Malhotra has said natural factors, including currency leakage and banks' reserve requirements, along with central bank operations, are expected to gradually absorb a significant portion of the surplus during the financial year.

What the RBI's New Stance Means

The shift to “calibrated tightening” signals that the RBI is no longer focused on supporting monetary easing and is instead prepared to respond to emerging inflation risks. If the ICICI Bank forecast materialises, borrowers with floating-rate loans could face higher interest costs as banks transmit further repo-rate increases. However, the extent and timing of transmission will depend on individual lenders and the type of loan. For now, the RBI's next policy decisions will depend on inflation, growth, liquidity conditions, the rupee and global financial developments.

(The above story first appeared on LatestLY on Oct 08, 2026 03:56 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).