Indian equities trimmed losses and rallied on Wednesday after the Reserve Bank of India raised its repo rate by 25 basis points, signalling a shift towards tighter monetary policy amid persistent inflation concerns, prompting bargain buying at lower levels.
Indian equities trimmed their losses on Wednesday after the Reserve Bank of India raised its repo rate by 25 basis points and signalled a slightly tighter policy bias, but buyers stepped in at lower levels after a prolonged slide in share prices. The Sensex recovered sharply from its intraday low, while the Nifty moved back above 22,700 as investors looked past the immediate shock of higher borrowing costs. According to market data cited in the reports, the broader market was mixed, with advances and declines broadly balanced.
The central bank lifted the benchmark lending rate to 5.5% from 5.25%, its first increase since February 2023, and changed its stance from neutral to calibrated tightening. RBI Governor Sanjay Malhotra said the pace and size of any future action would depend on actual inflation and growth readings, leaving room for further moves if price pressures persist. Financial stocks initially came under pressure, but banking shares helped steady the indices later in the morning, with Kotak Mahindra Bank, ICICI Bank and Axis Bank among the better performers.
Analysts said much of the rate rise had already been priced in before the policy announcement, which limited the sell-off and encouraged bargain hunting in beaten-down stocks. That interpretation fits with the broader backdrop of eight straight weeks of market weakness, which had left investors hunting for value. Indian shares had already been under strain from concerns over inflation, crude oil and global financial conditions, with one report noting that consumer inflation had climbed to 4.82% in August and remained above the RBI’s 4% target for a third consecutive month.
The latest move also marks a shift away from the more cautious stance the RBI held earlier this year. In June, the central bank left rates unchanged and kept policy neutral, citing global uncertainty, while in October 2025 it also held the repo rate at 5.5% and sounded less restrictive. Wednesday’s decision therefore suggests a firmer emphasis on inflation control, even as the RBI continues to watch growth closely. For investors, that leaves the near-term outlook tied to whether price pressures ease enough to keep the tightening cycle brief.
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