The Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) raised the repo rate by 25 basis points from 5.25 per cent to 5.5 per cent on October 7, 2026, and shifted its stance from neutral to calibrated tightening. “We expect the repo rate to reach 6.25 per cent by early 2027,” says Dhawal Dalal, president and chief investment officer (CIO), fixed income, Edelweiss Mutual Fund.

 Fixed deposits

 Public and private sector banks currently offer 5-7.65 per cent for one- to 10-year tenure. Small fin­ance banks offer 5.75-8.25 per cent. 

Home loans 

Lenders are likely to pass on the hike quickly to floating-rate home loans linked to the repo rate. “For new borrowers, the rate impact will be immediate. For existing borrowers, the impact will depend on their loan’s reset cycle,” says Santosh Agarwal, CEO, Paisabazaar. Loan terms determine whether the equated monthly instalment (EMI), tenure or 

both increase. 

“Existing borrowers who have surplus cash should make partial loan prepayments to offset the impact of rising EMIs and reduce the overall interest burden,” says Abhishek Kumar, Securities and Exchange Board of India (Sebi)-registered investment adviser and founder, SahajMoney.com. 

Deepesh Raghaw, Sebi-registered investment adviser, suggests that borrowers under unfavourable marginal cost of funds based lending rate (MCLR) or base rate regimes, or those whose finances have improved, should consider 

refinancing.

 Banks assess the fixed obligation to income ratio (FOIR). “With rates going up, the amount of loan a new borrower is eligible for will be affected,” says Raghaw. 

Financially ready buyers need not defer purchases solely because of the hike. “Long-term commitments like home loans usually span several cycles of rising and falling interest rates. Rather than attempting to borrow at the right time in the interest-rate cycle, focus on long-term repayment capacity while keeping enough headroom for future adjustments in EMIs,” says Agarwal. Compare offers for your income and credit profile. 

Car and personal loans Floating-rate loans linked to external benchmarks become costlier for new borrowers, and at the scheduled reset date for existing borrowers. 

New borrowers should assess whether higher EMIs are affordable if rates rise further. “Those who have savings should consider making a higher down payment to minimise their total interest cost,” says Kumar.

 Existing borrowers should check whether they are on a fixed or floating rate and 

consider part-prepayment.

 Debt mutual funds 

Rate hikes have a greater negative impact on funds with significantly higher duration. These funds have already priced in the anticipated rate hike. “They might see some impact in the near term,” says Devang Shah, head of fixed income, Axis Mutual Fund. 

The yield curve tends to flatten during a rate-hike cycle. “During an interest-rate hike cycle, the larger part of the allocation should be in funds with lower duration,” says Shah. 

Investors comfortable with volatility and duration risk may make small tactical allocations to gilt and duration funds. “A broader move towards longer-duration funds would be appropriate after a couple of hikes have occurred and there is greater consensus that the hike cycle will not be steep,” says Shah. 

“If yield to maturity has risen, investors may consider target maturity funds, provided their horizon matches the maturity 

of the fund,” says Raghaw.