Following the Reserve Bank of India’s Monetary Policy Committee decision to raise the policy repo rate by 25 basis points to 5.5 per cent, multiple domestic public and private sector lenders—including the Bank of Baroda, Punjab National Bank, Indian Bank, Indian Overseas Bank, Bank of India, UCO Bank, and RBL Bank—have swiftly increased their repo-linked and external benchmark-linked lending rates by a commensurate 25 basis points. This upward revision immediately increases borrowing costs for new loan applicants, while existing loans tied to external benchmarks will be repriced within 90 days, impacting monthly financial commitments for retail and corporate borrowers alike. While external benchmark transmission remains prompt, pass-through to existing deposit bases is anticipated to progress gradually due to current liquidity cushions, though fresh deposit rates are showing signs of hardening alongside rising short-term money market rates. Specifically, the Bank of Baroda hiked its repo-based lending rate to 8.15 per cent, reflecting a 2.65 percentage point spread over the updated repo rate, while institutions like Punjab National Bank, Indian Overseas Bank, and the Bank of India adjusted their repo-linked rates to 8.35 per cent. Indian Bank raised its benchmark rate to 8.20 per cent, and UCO Bank revised various treasury bill and government security-linked rates alongside its repo rates, effective October 8. The broader monetary policy shift featured a unanimous vote for the 25 basis point hike accompanied by an unexpected stance change to “calibrated tightening,” backed by four MPC members despite dissent from external members Ram Singh and Nagesh Kumar. Adopting a hawkish tone, RBI Governor Sanjay Malhotra declared that interest rate cuts are off the table in the near term, signaling that future policy adjustments will be restricted to further hikes or pauses depending on evolving macroeconomic conditions and inflation outlooks. Economists anticipate this current tightening cycle to remain relatively shallow, projecting a cumulative 75 basis point total increase throughout the cycle, which suggests that consumer and corporate borrowing costs could experience additional upward pressure in the coming months as financial institutions adjust to tighter monetary policy constraints and broader macroeconomic headwinds across the domestic banking landscape.
RBI Shifts Stance to Calibrated Tightening as Governor Rules Out Near-Term Rate Cuts
