The Reserve Bank of India’s Monetary Policy Committee (MPC) meeting -- led by Governor Sanjay Malhotra -- on Wednesday announced to raise key policy rate by 25 basis-points (bps), taking it to 5.50 amid a challenging global environment.

SDF rate stands adjusted at 5.25 per cent, and the marginal standing facility range and the bank rate to 5.75 per cent, said the RBI.

After the three-day brainstorming, Malhotra said that global inflation is projected to increase sharply, prompting monetary policy tightening by the major central banks across the world.

The Central Bank had kept the repo rate unchanged at 5.25 per cent for quite some time. The rate hike comes amid challenging factors, including rising inflation and crude oil prices above $100 a barrel driven by the West Asia crisis.

The six-member committee concluded its three-day review against a backdrop of escalating domestic inflation and shifting global macroeconomic pressures.

Economists had expected an increase in the repo rate for the first time since February 2023.

With inflation nearing 5 per cent, economists see further monetary tightening in the upcoming RBI MPC meetings.

SBI Research said the balance of risks tilted decisively toward a 25-bps rate hike by the RBI at this juncture, as broadening inflationary pressures, worsening global macros, evolving liquidity conditions, and a renewed global repricing of risks make the case for pre-emptive action stronger.

"It would be prudent for us to act pre-emptively rather than be behind the curve," said economists at SBI Research.

Additionally, CPI inflation rose to 4.82 per cent in August from 4.45 per cent in July. While strong El Nino conditions and below-normal October rainfall could pose further risks to Rabi output.

In addition, rising crude oil prices, inflation and higher bond yields globally narrowed the Reserve Bank of India’s room to hold rates unchanged.