The Reserve Bank of India’s first rate increase since February 2023 adds to renewed monetary tightening as energy costs and broader inflation pressures rise. Its shift to “calibrated tightening” leaves another hike or a pause as the next policy options.

Elevated French bond spreads, rising US Treasury yields and disruption to oil shipments through the Strait of Hormuz are adding to global funding and inflation pressures. The Financial Stability Board’s finding that around half of reviewed jurisdictions still have material gaps in public-sector resolution funding exposes unfinished preparations for bank failures.

Read more on the week’s key developments:

1. RBI raises rates for the first time since February 2023, introduces measures to support the rupee

The Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 5.5% on 7 October and shifted its stance from neutral to “calibrated tightening”. The six-member Monetary Policy Committee voted unanimously to raise the rate, although two members preferred to retain a neutral stance. The decision followed 7.8% growth in the first quarter of the 2026–27 financial year. The RBI forecast full-year growth of 7.1% but raised its inflation projection to 5.2%, citing higher energy and commodity prices, a deficient monsoon and El Niño risks. It also noted broader food inflation and a pickup in core inflation.

On 10 October, the RBI announced a special dollar window, effective from 12 October, for three state-owned oil marketing companies and tightened rules on rupee-linked foreign-exchange derivatives, including restrictions on rebooking cancelled contracts and reserve requirements for certain hedges. The rupee opened about 1% stronger on 12 October, at 95.76 per dollar against Friday’s close of 96.73. The measures address oil-related dollar demand and pressure from corporate hedging, adding currency support to the RBI’s monetary tightening. Higher energy costs are placing pressure on both inflation and the exchange rate.

2. Global bond sell-off pushes sovereign yields to multi-decade highs

The French-German 10-year bond spread widened to an intraday high of almost 160 basis points on 2 October, its highest since November 2011. On 7 October, it stood at about 134 basis points in the Banque de France/Bundesbank series, with French 10-year yields remaining above Italy’s amid concern over France’s debt and political outlook. The US 10-year Treasury yield touched 5.365% that day, its highest since 2002. On 8 October, the UK 10-year gilt yield reached 5.527%, its highest since July 2007, while the 30-year yield hit 6.05%, a level last seen in early 1998. Rising oil prices added to inflation concerns and bond-market pressure.

The sell-off is also constraining corporate access to funding. Bloomberg reported on 6 October that Asia-Pacific US-dollar bond yields had touched 6.1%, their highest since 2024. Higher borrowing costs were making it harder for companies to proceed with deals; bankers expected fourth-quarter issuance to be flat or lower than a year earlier. The Federal Reserve’s September meeting minutes, released on 7 October, said most participants judged another rate increase would likely be appropriate by year-end.

3. US turns to Russian diesel as oil prices stay above $100

Brent crude futures settled at $104.28 a barrel on 8 October after trading above $105, amid renewed Middle East supply concerns and hurricane-related disruption to US production. On 9 October, President Donald Trump said Russia had agreed to supply more than 300,000 tonnes of diesel immediately to US and global markets. The Office of Foreign Assets Control issued General License 135, authorising specified transactions involving Russian-origin diesel, including US imports, until 7 April 2027.

The licence makes sanctions policy part of Washington’s response to domestic fuel-price pressure. Russia had restricted diesel exports amid refinery disruptions and efforts to maintain domestic supplies, leaving the availability of additional shipments uncertain. The diesel arrangement does not resolve disruption to crude shipments through the Strait of Hormuz.

4. FSB finds gaps in emergency funding plans for failing banks

The Financial Stability Board (FSB) said on 9 October that around half of the jurisdictions it reviewed still have material gaps in public-sector backstop funding for systemic banks entering resolution. These facilities provide temporary liquidity as a last resort when a bank cannot obtain sufficient funding from its own resources or the market. The FSB urged authorities to establish arrangements before a crisis.

The review follows the 2023 banking turmoil, including the US bank failures and emergency takeover of Credit Suisse. It examines whether authorities can provide funding at the scale and speed needed for orderly resolution. Legal resolution powers alone may be insufficient if liquidity cannot reach the right entity in time. The findings expose a practical weakness in crisis preparations, while reinforcing the need to limit taxpayer exposure and recover public losses.

5. Malaysia expands household and business support while targeting a smaller deficit

Malaysia’s Budget 2027, tabled on 9 October, combines higher household incomes and business financing support with a fiscal deficit target of 3.3% of GDP. The government revised its 2026 deficit projection to 3.6% from 3.5% as higher energy prices increased fuel subsidies. It also proposed raising the monthly minimum wage from MYR 1,700 ($416) to MYR 2,000 ($490) from June 2027, exempting micro, small and medium-sized enterprises with annual sales below MYR 50 million ($12.25 million).

Bank Negara Malaysia will add MYR 5 billion ($1.22 billion) to its SME Stabilisation Relief Facility, doubling the allocation. By 30 September, MYR 3.8 billion ($0.93 billion) had been approved for more than 6,800 SME accounts. The additional working-capital support addresses temporary cash-flow pressures arising from the Middle East conflict. The budget combines relief for households and businesses with continued deficit reduction, although this year’s upward revision shows how higher energy costs can constrain that fiscal path.

6. Philippines inflation rises to 7.2% in September on higher food and transport costs

The Philippines’ annual inflation rate rose to 7.2% in September from 6.1% in August, while core inflation increased to 4.7% from 4.1%. Food and non-alcoholic beverages were the main driver, with inflation rising to 6.7% from 4.6%. Inflation in the category covering vegetables, tubers, plantains, cooking bananas and pulses swung from a 3.4% annual decline to a 10.7% increase, while rice inflation reached 20.3%.

The September inflation rise followed the Bangko Sentral ng Pilipinas' (BSP) 25-basis-point rate increase on 27 August, which took its policy rate to 5.00%. Bank lending grew 11% year on year in August, led by business loans, up 10.6%. Consumer-loan growth eased to 16.2% from 17.1% in July, although credit-card loans still grew 23.3% year on year. At its 22 October meeting, the BSP will have to weigh the latest inflation rise against the slowdown in consumer-credit growth.

7. Vietnam bank credit grows 16.7% as deposit rates climb

Credit across Vietnam’s banking system reached VND 20.75 quadrillion (approximately $786 billion) at the end of September, up 11.59% from the end of 2025 and 16.69% year on year, the State Bank of Vietnam (SBV) said at a 7 October briefing. Average rates on new deposits stood at 6.38% on 20 September, 1.15 percentage points above their level at the end of 2025. Deputy Governor Pham Thanh Ha said the rise in interest rates was slowing and rates had broadly settled around a new level. The SBV has kept its policy rates unchanged.

Inflation averaged 4.52% in the first nine months, slightly above the government’s 4.5% target. Pham Chi Quang, director of the SBV’s Monetary Policy Department, said Vietnam could not stand apart from global interest-rate trends and had to balance interest rates with the exchange rate. He said there was limited room for monetary easing.

8. OCC fines American Express $350 million over anti-money-laundering failures

The Office of the Comptroller of the Currency (OCC) fined American Express National Bank $350 million and issued a cease-and-desist order over anti-money-laundering deficiencies, including weak staffing, controls, testing and training. The bank failed to identify and sufficiently report approximately $13 billion in suspected trade-based money-laundering activity over the past decade in a timely manner. The figure represents suspected activity, not confirmed illicit funds.

The OCC found that risk assessments focused too heavily on deposits and insufficiently on the bank’s dominant card operations, exposing a mismatch between controls and its principal business. The Federal Reserve issued a concurrent group-level enforcement action. American Express said it was strengthening controls and had already reserved for part of the penalty. The company said the fine did not affect its 2026 guidance and remediation costs were not expected to affect its 2027 guidance.

9. Federal Reserve to reorganise bank supervision into five regions

Federal Reserve Vice Chair for Supervision Michelle Bowman said on 6 October that the Fed would realign bank supervision into five regions, each led by a regional leader accountable for supervisory activity. The regions will follow state boundaries rather than the Fed’s 12 districts, while examiners remain in their current Reserve Bank locations. The structure will draw on the regional model used by the Conference of State Bank Supervisors.

Bowman said the Fed’s committee structure had delayed action and obscured responsibility. An independent review of the Fed’s supervision of Silicon Valley Bank also found a mismatch between decision-making authority and accountability. The new structure is intended to clarify responsibility and improve coordination with state regulators, which share supervision of state member banks.

10. European Systemic Risk Board warns EU financial stability risks have risen

The European Systemic Risk Board (ESRB) said on 8 October that risks to EU financial stability had risen over the previous quarter, although banks remained profitable and well capitalised. The ESRB warned that leveraged funds’ growing role in sovereign debt markets could amplify market moves and spread repricing to corporate bonds and equities.

The board also flagged concentrated financing of AI and technology companies. It warned that overly optimistic expectations for AI profits could trigger disorderly asset-price falls and deteriorating asset quality, although this concentration is lower in the EU than in the US. Frontier AI models are also raising cyber risks. In remarks on 1 October, ECB President Christine Lagarde cited tests showing that newer AI models could complete an entire 32-step simulated cyberattack, compared with about a third of the steps on average for models released at the end of 2025. The ESRB said these risks could interact with geopolitical tensions.

What to watch

IMF and World Bank Annual Meetings in Bangkok (12–18 October), India’s consumer price index (12 October), Japan’s corporate goods price index (13 October), IMF World Economic Outlook and Global Financial Stability Report (13 October), Monetary Authority of Singapore policy review and US consumer inflation (14 October), China’s CPI and producer price index and the IMF Fiscal Monitor (14 October), and US producer inflation, retail sales and the IMF’s Asia-Pacific Regional Economic Outlook (15 October).