After US Fed and others, will RBI also raise interest rates in Oct?, Pg17

Key Highlights:

• The US Federal Reserve's Federal Open Market Committee (FOMC) increased the federal funds rate target range by 25 basis points (bps) to 3.75-4%.
• This marks the first rate hike by the US Fed in three years, with all 12 FOMC members, including new Chair Kevin Warsh, voting in favor.
• Central banks in the UAE and Bahrain also raised their main interest rates by 25 bps, mirroring the US decision.
• The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is widely expected to raise the repo rate by 25 bps to 5.5% in its upcoming October 5-7 meeting.
• India's Consumer Price Index (CPI) inflation rose to 4.82% in August 2026, exceeding the 4% target for the third consecutive month.

Global Rate Hike Cycle.jpg

Detailed Insights:

• The US Fed's decision was made despite the White House expressing dissatisfaction, citing "elevated inflation" and a need to return to the 2% inflation target.
• Global central banks are tightening monetary policy in response to persistent inflation, often exacerbated by geopolitical developments and rising energy prices.
• The Bank of Japan is also anticipated to raise interest rates to a 31-year high, driven by inflation risks from a weak yen, high import prices, and strong AI demand.
• The European Central Bank previously raised rates due to upward price pressures stemming from the West Asia conflict.
• India's August CPI inflation was primarily driven by increases in food and transport prices, with crude oil prices posing a significant risk.
• The RBI is mandated to maintain CPI inflation within a tolerance band of 2-6%, with a target of 4%.
• Economists predict India's CPI inflation could reach 5.7% in September and potentially cross 6.5% before moderating in early 2027.
• The RBI's Monetary Policy Committee had kept the repo rate unchanged at 5.25% for four consecutive times before the current rate hike expectations.

Key Concepts Involved:

• Federal Funds Rate: The target interest rate set by the Federal Open Market Committee (FOMC) for overnight borrowing between banks in the United States.
• Basis Points (bps): A common unit of measure in finance, equal to one-hundredth of a percentage point (0.01%), used to denote small changes in interest rates or yields.
• Repo Rate: The interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks for short periods against government securities.
• Consumer Price Index (CPI): A measure that tracks the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, indicating retail inflation.
• Monetary Policy Committee (MPC): A six-member body of the Reserve Bank of India responsible for fixing the benchmark interest rate (repo rate) to achieve the inflation target set by the government.