Archive · 12 Oct 2026
RBI Rate Hike Puts Currency, Inflation and Credibility in Focus
India’s central bank raised its main interest rate by a small amount.
The article says prices may keep rising, and a weaker rupee can make imported goods more expensive.
It also says foreign-currency deposits brought money into the system but created obligations that must be repaid.
Extra money in banks may affect how deposit and loan rates move.
The writer thinks the central bank may need to raise rates faster to support the rupee and control inflation.
The RBI did not announce new measures to remove extra money from the banking system.
These are the writer’s views about what the RBI may need to do next.
The Reserve Bank of India raised its repo rate by 25 basis points and signalled that further increases may follow.
The article argues that inflation risks are being compounded by rupee depreciation, which can raise the cost of imports.
It says foreign-currency deposits have provided temporary liquidity while adding repayment obligations and contributing to a larger forward book.
The RBI reportedly identified surplus liquidity as a factor behind differing movements in deposit and lending rates.
The writer argues that external risks could require faster, potentially 50-basis-point rate hikes, while noting the RBI did not announce new liquidity measures.
- Who
- The Reserve Bank of India (RBI), and the article’s writer, the chief economist of RBL Bank.
- What
- The RBI raised the repo rate by 25 basis points and indicated further hikes may be ahead; the article examines currency, inflation and liquidity risks.
- When
- The article was published on October 12, 2026.
- Where
- India.
- Why
- The RBI cited inflation concerns; the article argues that rupee depreciation and external risks also strengthen the case for monetary tightening.
Cautious tightening
Faster tightening
Size and timing of rate increases
Cautious tightening
The article suggests a larger hike could further distort lending and borrowing rates when liquidity is already in surplus.
Faster tightening
The writer argues that currency volatility and inflation risks may call for 50-basis-point hikes without waiting another eight weeks.
Foreign-currency deposits
Cautious tightening
FCNR deposits bring foreign currency and liquidity into the banking system.
Faster tightening
The article argues that the deposits are borrowing with repayment obligations, making their reserve benefit temporary and adding to the forward-book burden.
- Repo rate move
- Raised by 25 basis points.
- Inflation tolerance upper band
- 6 per cent, according to the article.
- Merchandise imports
- $830 billion over the last 12 months, as stated in the article.
- Merchandise exports
- $476 billion over the last 12 months, as stated in the article.
- FCNR deposits
- The article cites $133 billion.
- RBI forward book
- The article says it grew from $103 billion before FCNR mobilisation to $200 billion as of August.
- Rupee depreciation
- The article cites 4.7 per cent in 2025 and 7 per cent year-to-date.