India interest rates rise for first time since 2023

India's central bank raised interest rates Wednesday for the first time since 2023, lifting its benchmark repurchase rate by 25 basis points to 5.50 percent as inflation and pressure on the rupee mounted.

The Reserve Bank of India said the decision was unanimous among its six-member monetary policy panel. The repurchase rate is the level at which the RBI lends to commercial banks.

RBI governor Sanjay Malhotra said in a televised address from Mumbai that “inflation and its outlook are not benign as they were last year” and that there was “some evidence” of a wider spread of inflation.

Malhotra said the monetary policy committee had changed its stance to “calibrated tightening”. He said rate cuts were off the table in the near term and that future policy action could only be another rate hike or a pause, depending on conditions and the outlook.

Retail inflation rose to 4.8 percent in August, the third consecutive month in which headline inflation breached the RBI's medium-term target of four percent.

The rupee has been near record lows over the past week. The RBI has introduced measures to attract dollar inflows, including a deposit scheme for the Indian diaspora that brought in around $127 billion.

India imports most of its energy and is the world's third-largest buyer of oil. It normally sources about half of its crude through the Strait of Hormuz, which has been effectively closed since the beginning of the Middle East war.

Garima Kapoor of Elara Capital said the rising global interest-rate backdrop had reduced the RBI's room for manoeuvre and that she saw the likelihood of another 50 basis points of hikes in this cycle.