The Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 5.50 percent on October 6, 2026. This is the first rate hike in nearly four years and has led several banks to increase their lending rates, making loans costlier for borrowers starting October 8.
- The RBI’s Monetary Policy Committee unanimously voted for the rate increase.
- Punjab National Bank (PNB) raised its Repo Linked Lending Rate (RLLR) to 8.35% from 8.10%.
- Indian Bank, Bank of Baroda (BoB), Bank of India (BoI), Indian Overseas Bank (IOB), and Tamilnad Mercantile Bank also increased their lending rates.
- Loan costs are expected to rise as more banks adjust their rates following the RBI’s decision.
Why did the RBI increase the repo rate?
The RBI increased the repo rate by 25 basis points to 5.50 percent to manage inflation and stabilize the economy. The decision was unanimous among the six-member Monetary Policy Committee (MPC). This hike is the first since Sanjay Malhotra became RBI Governor in December 2024.
Which banks have raised their lending rates?
Several banks have already revised their lending rates effective October 8, 2026. Punjab National Bank (PNB) increased its Repo Linked Lending Rate (RLLR) from 8.10% to 8.35%, which includes a Business Strategic Premium of 0.35%. However, PNB’s Marginal Cost of Lending Rate (MCLR) and Base Rate remain unchanged.
Indian Bank raised its Repo Linked Benchmark Lending Rate (RBLR) from 7.95% to 8.20%. Bank of Baroda (BoB) increased its Repo Based Lending Rate from 7.90% to 8.15%. Bank of India (BoI) and Indian Overseas Bank (IOB) also raised their rates to 8.35%. Among private sector lenders, Tamilnad Mercantile Bank increased its Repo Linked Lending Rate from 8.25% to 8.50%.
How will the rate hike affect borrowers?
With the increase in lending rates, loans will become more expensive for customers. Borrowers seeking new loans or those with floating rate loans linked to the repo rate may face higher interest costs. This can affect home loans, personal loans, and business loans.
Existing borrowers with fixed-rate loans will not be immediately affected, but future borrowing costs are expected to rise. The rate hike aims to control inflation but also increases the cost of credit in the economy.
Are more banks expected to raise their lending rates?
Yes, following the RBI’s repo rate hike, more banks are expected to revise their lending rates in the coming weeks. This is a common response as banks adjust their rates to reflect the increased cost of borrowing from the RBI.
Frequently Asked Questions
Q: What is the repo rate?
A: The repo rate is the interest rate at which the RBI lends money to commercial banks. Changes in the repo rate influence lending rates across the banking system.
Q: How does a repo rate hike affect loan interest rates?
A: When the RBI raises the repo rate, banks often increase their lending rates to maintain their profit margins, making loans more expensive for borrowers.
Q: Will existing loan borrowers be affected immediately?
A: Borrowers with floating rate loans linked to the repo rate may see their interest costs increase. Fixed-rate loan borrowers are not affected immediately.
Q: Why did the RBI increase the repo rate now?
A: The RBI increased the repo rate to manage inflation and ensure economic stability as part of its monetary policy.
