The State Bank of India (RBI) on Friday hinted that the Reserve Bank of India (RBI) is likely to increase the repo rate by 25 basis points in October. “The Reserve Bank of India (RBI) is expected to hike its key lending rate by 25 basis points in October,” the SBI Ecowrap report said. Even in August, the RBI had hiked its key lending rate by 25 basis points to bring the repo to 6.50 per cent citing upside risks to inflation. According to the report, the expected rate hike might not be the last one in the current fiscal.

Repo rate is the rate at which the central bank of a country borrows money from commercial banks if it undergoes any shortage of funds. The increase in the Repo rate increases the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit. Repo rate is used by monetary authorities to control inflation.
However, a survey conducted in August predicted that the rates would stay on hold until this quarter and several economists believed that the central bank would increase the increase the repo rate at least once a year.

According to a poll conducted by news agency Reuters, “the predicted rate hike would be the RBI's third this year, having lifted borrowing costs in June and August. The US Federal Reserve is forecast to raise rates this week - its third this year - according a separate Reuters poll.

Earlier this month, a Japanese brokerage firm stated that despite depreciating value of India rupee against US dollar does not offer a sustainable alibi for a rate hike and the RBI might go for a status quo at the review scheduled next month. “Because of the RBIs inflation-targeting mandate, currency weakness in itself may not provide a sufficiently strong argument for rate hikes,” its economists of the brokerage firm said.