The RBI raised the repo rate by 25 bps to 5.50% on October 7, 2026, the first hike in nearly four years under Governor Sanjay Malhotra. The last increase was in February 2023. According to the RBI’s policy statement, the Monetary Policy Committee (MPC) voted unanimously for the hike and changed its stance to calibrated tightening, although two members, Nagesh Kumar and Ram Singh, wanted to keep the stance neutral.
Government bonds sold off as a result. The 10-year yield settled at 7.24%, the highest since December 13, 2023, up from a previous close of 7.19%.
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Why Bond Yields Hit a Near Three-Year High
Traders read the policy tone as hawkish. One primary dealer said a December hike now looked confirmed, which led to heavy selling. The RBI has not committed to one. It said rate cuts are off the table in the near term and the next move can only be a hike or a pause, depending on growth and inflation. Yields have risen 21 bps this fiscal year and 58 bps since the US-Iran conflict began.
| Indicator | Latest reading |
| Repo rate | 5.50% (from 5.25%) |
| Policy stance | Calibrated tightening |
| SDF / MSF rate | 5.25% / 5.75% |
| 10-year G-sec yield | 7.24% (7.19% previous close) |
| Rupee | Down 22 paise to 96.57 per US dollar |
Oil, Outflows, and Global Rates Add Pressure
- Crude oil: Brent futures traded above $101 a barrel on Wednesday and have stayed above $100 for most of the past month, with West Asia supply risks keeping the market on edge.
- Foreign selling: Persistent selling by foreign portfolio investors, along with rupee depreciation, has kept bonds under pressure. Forex reserves fell by a record $18.3 billion in the week ended September 25.
- Global tightening: The RBI noted that the US Fed hiked by 25 bps in September and that global bond yields remain at record highs.
What the RBI Projects for Inflation and Growth
- CPI inflation: Forecast raised to 5.2% for 2026-27 from 5.0%, peaking at 6.0% in Q3. Headline inflation is expected to average almost 5.8% over the next three quarters.
- Current readings: CPI rose to 4.8% in August from 4.5% in July, while core inflation increased to 4.2%.
- Drivers: A deficient monsoon, El Niño conditions, and high energy prices.
- GDP growth: Projection raised to 7.1% from 6.7%, after Q1 growth of 7.8%.
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What Analysts Expect Next
- More hikes likely: HSBC Global Investment Research expects another 25 bps hike in December. SBI Research sees the repo rate reaching 5.75% by the end of 2026.
- Yields could climb further: Motilal Oswal’s Siddhartha Khemka said the stance shift could push the 10-year yield towards 7.5%.
- Value for long-term investors: At about 7.2%, the 10-year yield offers close to 200 bps of real yield over projected inflation, according to an analyst quoted by Outlook Money.
What It Means for Borrowers and Investors
Floating-rate loan EMIs are likely to rise as banks pass on the higher repo rate. Debt mutual fund NAVs, especially in longer-duration schemes, may stay volatile in the short term as yields reprice. Fixed deposit rates could gradually move up as well.
The Road Ahead
The RBI said the duration and extent of the hiking cycle will depend on underlying inflation, the broadening of price pressures and second-round effects of the supply shock. The next MPC meeting is scheduled for December 2 to 4, with the October minutes due on October 21. Oil prices, foreign flows and the rupee will guide bonds until then.
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