RBI rate hikes expected
Nomura expects the Reserve Bank of India to raise interest rates despite varying inflation forecasts.
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Nomura expects the Reserve Bank of India to raise its repo rate by 25 basis points in October and again in December, bringing it to 5.75%, but argues markets are pricing a steeper-than-needed hiking cycle. It expects inflation to rise in the near term on food and energy costs before easing toward the RBI’s 4% target in FY28, while moderating trend inflation and signs of below-trend growth limit the case for aggressive tightening. Other economists also anticipate a relatively shallow cycle, though some see a total of 50–75 basis points of increases; SBI Research says inflation is spreading across more commodities, and rising crude prices could push inflation above 6% and beyond the RBI’s tolerance band. Resilient economic growth is a counterweight to those inflation risks.
Key Points
1
Nomura’s forecast puts CPI inflation at 6.3% in Q4, about 5.3% in the first half of 2027, and below 4% in the second half of 2027.
2
SBI Research said 51 commodities accounted for 90% of CPI’s weighted contribution in August, up from 22 commodities in January, indicating that inflation’s reach had broadened.
3
Brent crude had risen from $80 to $102 a barrel, above the RBI’s FY27 assumptions of $95 in its June policy and $90 in its August policy.
4
The RBI held the repo rate at 5.25% at its August meeting and retained a cautious, wait-and-watch stance; its next bi-monthly policy review was scheduled for October 5–7.
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