The Reserve Bank of India raised its repo rate by 25 basis points to 5.50% on Wednesday, its first hike since February 2023, and ruled out near-term cuts. Gold and silver prices have been a big driver of India's core inflation.
At a glance
- The Monetary Policy Committee voted unanimously for the hike and changed its stance to calibrated tightening.
- The RBI now projects CPI inflation at 5.2% for FY27 and GDP growth at 7.1%.
- Core inflation was 4.2% in August, but only 2.9% when precious metals are excluded.
Background
The repo rate is the rate at which the RBI lends to banks, and it shapes borrowing costs across the economy. Core inflation strips out volatile food and fuel prices to show underlying price pressure. India's consumer price index includes gold and silver, so a rally in precious metals pushes up the core inflation reading.
What happened
The RBI's Monetary Policy Committee unanimously voted to raise the repo rate by 25 basis points to 5.50% from 5.25%, Governor Sanjay Malhotra said on Wednesday. It also changed its stance to calibrated tightening, the first hike since February 2023.
"Given the current conditions, rate cuts are off the table in the near term, and policy action ahead can only be a rate hike or a pause," Malhotra said. The standing deposit facility rate was raised to 5.25%, and the marginal standing facility rate and bank rate to 5.75%.
Why the RBI acted
Inflation is rising and spreading. CPI inflation climbed to 4.8% in August from 4.5% in July, driven by food and fuel, and price increases have become broad-based, with spikes in items such as sugar and onion. About 37% of items in the index now show inflation above 4%.
Precious metals are a big part of the story. Core inflation rose to 4.2% in August, but excluding precious metals it was just 2.9%. The RBI now projects inflation at 5.2% for FY27, peaking at 6% in the third quarter, and growth at 7.1%.
What it means for gold buyers
Higher interest rates raise the return on deposits and bonds, which can make non-yielding gold a little less attractive to Indian savers. Loans, including gold loans, may also become costlier as banks pass on the hike.
The bigger driver of Indian gold prices remains the global market and the rupee. Malhotra said the length of the hiking cycle will depend on underlying inflation, how far price pressures broaden and second-round effects of the supply shock.
Our read
Outlook: neutral. Higher Indian rates raise the cost of holding gold, but domestic prices are driven mainly by global gold and the rupee. The hike alone is unlikely to change the trend.
What to watch
- September CPI data, which HSBC expects to jump to about 5.5%.
- Whether the RBI hikes again or pauses at its next meeting.
- How banks pass the hike on to loan rates, including gold loans.
For information only, not investment advice.
Gold price in India
metalscost.com India reference price as of 2026-10-24.
Detailed analysis
Timeline
- 2026-10-07: The RBI raises the repo rate to 5.50% and shifts to calibrated tightening.
Inflation
Core inflation was 4.2% in August, but only 2.9% excluding precious metals.
Interest Rates
The RBI raised its repo rate to 5.50% and said cuts are off the table in the near term.
Central Banks
The RBI changed its stance to calibrated tightening after a unanimous vote.
What could lift prices
- Rising Indian inflation, projected to peak at 6%, supports gold as an inflation hedge.
- Rate hikes have not stopped broad-based price pressures.
What could weigh on prices
- Higher deposit and bond returns can make non-yielding gold less attractive.
- Costlier gold loans may reduce borrowing against gold.
Country impact
| Country | Impact | Reason |
|---|---|---|
| India | High | The RBI began a rate-hike cycle to curb broadening inflation. |
Industry impact
| Industry | Effect | Reason |
|---|---|---|
| Jewellery | Negative | Higher borrowing costs can weigh on consumer spending on jewellery. |
Who gains, who loses
- Savers with bank deposits: Deposit rates may rise after the hike.
- Borrowers, including gold loan customers: Loan rates may rise as banks pass on the hike.
Other ways this could play out
- If September inflation jumps to about 5.5% as HSBC expects, the RBI could hike again.
- If inflation eases, the RBI may pause, as its stance allows.
Price risks
- A weaker rupee would lift domestic gold prices regardless of the rate hike.
- Further global gold weakness would outweigh any local rate effect.
Historical comparison
- February 2023: The RBI last raised rates, by 25 basis points to 6.50%.
Technical view
Price is trading below both its 20-period and 50-period moving averages, a bearish alignment.
Computed from metalscost.com's own stored price history.
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