A decision that looked like a formality two weeks ago is now genuinely uncertain. Economists have flipped from expecting the Reserve Bank of India to simply hold its repo rate at 5.25% to pricing a real chance of a hike, with a Business Standard poll finding 8 of 10 economists now expecting a 25 basis point increase to 5.50% when the Monetary Policy Committee decides on 7 October 2026. If it happens, it would be the RBI's first rate hike since February 2023.
That is a sharp reversal after a year defined by cuts. The RBI trimmed rates four times through 2025, a cumulative 125 basis points, and has held steady at 5.25% through four meetings since. Markets had largely stopped debating whether the next move would be a cut or a hold, and started debating only the timing of the next cut. That conversation ended this week.
Why the consensus flipped so fast
Three things changed at once, and none of them is under the RBI's control. India's monsoon closed on 30 September as its weakest in roughly a decade, with the India Meteorological Department confirming a nationwide rainfall deficit of about 13%, the fourth-lowest season since 2001, and 17 of its 36 subdivisions recording deficient rain. Onion, sugar and pulses prices have risen for seven consecutive months as a result, a pattern our India August CPI piece already flagged when food inflation hit 5.95% against a headline 4.82%.
Oil added the second push, and it landed on the worst possible day. Brent crude jumped 4.4% to $102.31 on 1 October 2026 after reports that a third US aircraft carrier group is heading toward the Middle East, as our carrier build-up and oil spike piece covers, undoing the brief relief the RBI had been getting from oil's late-September dip toward $97. India imports more than 90% of its crude, so a sustained $100-plus Brent raises the same imported-inflation risk that kept the RBI cautious all through 2025.
The third push came from outside India entirely. The US Federal Reserve hiked its own rate to 3.75 to 4.00% on 16 September 2026, as our Fed dot plot explainer covers, and SBI Research now expects the RBI to follow with hikes in both October and December, a cumulative 50 basis points of tightening in CY26. A central bank cutting while the Fed hikes puts extra pressure on its own currency, and the rupee has already weakened toward 96.3 to the dollar.
Why this matters for borrowers and the market
A hike would end the easing cycle that households and businesses got used to through 2025, when four cuts brought real relief to EMIs and corporate borrowing costs. Most floating-rate retail loans reset on an external benchmark, so a 25 basis point hike would show up in EMIs within a quarter, not years, through our repo rate to EMI transmission mechanism.
For the equity market, the timing could hardly be worse. The Nifty 50 is already nursing its worst September in 25 years, as our losing-streak analysis covers, and rate-sensitive sectors like banks, autos and real estate had quietly priced in a continuation of easier money. A hike removes that assumption at a moment the index has little cushion left to absorb bad news.
Savers are the one group who gain. Fixed deposit rates, which fell through 2025 in step with the repo rate, would likely firm by a similar margin after four straight cuts had squeezed them. For anyone sitting in cash ahead of the festive season, a hike is the first good news on deposit yields in over a year.
What could still change the outcome
The MPC is deciding before it sees September's CPI print, which lands around 12 October, five days after this decision. That gap means the committee is acting on August's 4.82% reading plus real-time indicators on oil and the monsoon, not on the freshest inflation number, which leaves room for the RBI to prefer waiting one more cycle.
Governor Sanjay Malhotra's six-member committee has surprised the market before; it delivered a 50 basis point cut in June 2025 when many expected 25, and has described its own stance as "neither dovish nor hawkish" at past meetings. Our will the RBI cut rates again in 2026 piece has tracked how far that stance has already shifted from where it stood in July.
Whatever the committee decides on 7 October, the fact that a hike is even on the table marks the real turn. For a year, every RBI meeting was a question of how much easier money would get. From this week, it is a question of whether the easing is over.