US, Japan Raise Rates: Will RBI Follow? Loan EMIs Could Rise as Rate Hike Bets Grow

Global central banks are tightening monetary policy again as inflationary pressures and higher energy prices weigh on the economic outlook. The US Federal Reserve raised its benchmark interest rate by 25 basis points on September 16, while the Bank of Japan raised its policy rate to 1.25% on September 18.

The moves have increased attention on the Reserve Bank of India (RBI), with economists and financial markets assessing whether India could also raise its policy rate and what that could mean for home loans, personal loans and EMIs.

US Fed Raises Interest Rate by 25 Basis Points

The US Federal Reserve raised the target range for the federal funds rate by 25 basis points to 3.75%-4.00% on September 16, 2026.

The Fed said inflation remained elevated and that the latest move was intended to support a return towards its 2% inflation goal. The September increase was the first US rate hike since July 2023.

The US central bank's latest projections also point to the possibility of another rate increase later in 2026, although future decisions will depend on incoming economic data.

Bank of Japan Raises Rate to 1.25%

The Bank of Japan (BOJ) also moved towards tighter monetary policy on September 18, raising its benchmark interest rate from 1% to 1.25%.

The move takes Japan's policy rate to its highest level in 31 years, according to Reuters. The BOJ is responding to continuing inflation risks and higher prices, including the impact of rising energy costs.

The simultaneous tightening by two major central banks has added to market focus on monetary policy in other economies, including India.

Will RBI Raise the Repo Rate?

The RBI has not announced a rate hike. However, expectations of tighter policy have increased following the latest inflation data and higher crude oil prices.

India's retail inflation rose to 4.82% in August 2026, up from 4.45% in July. Reuters reported that economists were increasingly considering an RBI rate hike as early as October, although some expect the central bank to wait until December.

Reuters also reported that the RBI's policy rate stood at 5.25% and that economists were discussing the possibility of a 25-basis-point increase. The timing and size of any future move remain uncertain.

Inflation and Crude Oil Add to Pressure

Inflation is one of the major factors being monitored by policymakers.

India's wholesale inflation accelerated to 9.92% year-on-year in August, according to government data reported by Reuters. Fuel and power prices rose sharply, while wholesale food and manufactured-product prices also increased.

Crude oil prices have also remained elevated. Brent crude was trading above $100 a barrel, adding pressure through India's import costs and potentially affecting inflation and the rupee.

What Could a 25-Bps RBI Hike Mean for Loans?

If the RBI raises the repo rate by 25 basis points, the impact on borrowers would depend on how banks and other lenders transmit the change to lending rates.

Borrowers with floating-rate home loans and other loans linked to external benchmarks could see their interest rates or repayment schedules change if lenders pass on the increase.

However, the exact impact on an individual EMI would depend on factors such as the outstanding loan amount, remaining tenure, interest-rate reset mechanism and the lender's response.

For fixed-rate borrowers, the immediate impact may be different because their contracted rate does not automatically change with every RBI policy move.

RBI Rate Decision Remains the Key Trigger

The latest moves by the US Federal Reserve and Bank of Japan have increased attention on global monetary policy, but they do not automatically mean that the RBI will follow with an identical rate increase.

The RBI will assess domestic inflation, economic growth, liquidity, currency conditions, crude oil prices and other factors before deciding its policy stance.

For now, a 25-basis-point RBI hike is an expectation among some economists, not a confirmed decision. Borrowers should therefore wait for the RBI's official monetary policy announcement before assuming that loan EMIs will rise.