India's Central Bank Raises Interest Rate for First Time Since 2023

The Reserve Bank of India (RBI) has increased its policy interest rate for the first time since February 2023, when it ended its post-pandemic tightening cycle. Through most of 2025 the bank cut rates to support economic growth, then left them unchanged from December 2025 until this decision.

Governor Sanjay Malhotra said the move reflected a challenging geopolitical environment, even though the Indian economy remains strong. He said rate cuts were off the table for now, and the bank would probably either raise rates further or hold them steady to contain inflation.

Inflation outlook

The RBI now expects consumer price inflation of 5.2% for 2026-27, up from the earlier estimate of 5%. It cited price pressure from weather disruptions, a weak monsoon and volatile international oil prices.

Crude oil is trading above $100 a barrel, and the rupee has fallen close to its all-time low against the dollar, raising India's import bill. The country imports about 90% of its crude oil and 50% of its gas needs.

Growth and market context

The bank also raised its growth forecast after the economy outperformed expectations in the first quarter. GDP growth for the current financial year is now projected at 7.1%, up 40 basis points.

Economists say the decision was expected, as the economy is resilient enough to absorb the effect of inflation without damaging growth. It also matches global trends: the US Federal Reserve has raised rates aggressively since 2022, and together with a strong dollar this has led investors to withdraw money from emerging markets such as India.

The RBI said it will use a mix of liquidity management tools and continue to curb excessive rupee volatility. Anuj Puri, chairman of real estate consultancy ANAROCK Group, said the hike could weigh on consumer sentiment and discretionary spending, noting that the festive season is key for housing demand.