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Informist, Wednesday, Sept. 16, 2026

 

By Shweta

 

NEW DELHI – The expectation that the Reserve Bank of India's Monetary Policy Committee will raise the repo rate at upcoming meetings in the financial year 2026-27 (Apr-Mar) has increased with headline inflation rising to a 20-month high of 4.82% in August from 4.45% a month ago. Having said that, economists are divided on a hike in the repo rate at the October meeting, with the majority still of the view that the panel will hold the rate at 5.25%, according to an Informist Poll.

 

The higher August inflation print has made four of 16 economists call for a repo rate hike at the next Monetary Policy Committee meeting in October. The other 12, however, think the committee will not raise the repo rate next month but will do so at meetings thereafter. "If crude oil prices remain elevated in the run-up to the upcoming MPC meeting, hinting at an impending upward revision in the retail selling prices of petrol and diesel, which could percolate into generalised price pressures, then the expected rate hike could get pre-poned to October 2026 from December 2026," Aditi Nayar, chief economist at ICRA, said in a note.

 

Recent developments on the global and domestic macroeconomic fronts have led to a change in economists' expectations for a rate hike sooner than later. Apart from higher inflation, Brent crude oil surging again to over $100 per barrel and the expectation that major global central banks will hike policy rates have also led economists to bring forward policy tightening expectations. Likewise, the RBI's foreign exchange swap schemes that have attracted higher-than-expected capital inflows of $136 billion have made some economists change their expectations of the October meeting.

 

"This would also allow the RBI's policy and liquidity stance to align, with the RBI looking to drain excess liquidity of around INR 4.3-4.7 trillion due to the FCNR+ (foreign currency non-resident deposit) flows," Madhavi Arora and Harshal Patel, economists at Emkay Global Financial Services, said. Arora and Patel expect a "shallow" rate-hiking cycle, if any. State Bank of India also sees a quick and limited rate hike cycle of 50 basis points by December.

 

The rate hike cycle is expected to be "shallow, with cumulative hikes of 50 bps to 75 bps", as it is driven by normalisation in inflation rather than signs of a generalisation of price pressures, Gaura Sen Gupta, chief economist at IDFC FIRST Bank, said in a note. "The rate hike cycle could start in October or December, with a higher probability of an October start given that inflation is expected to peak in Q3FY27 (Oct-Dec)," Sen Gupta wrote.

 

Among those who expect rate hikes to start in December, Indranil Pan and Khushi Vakharia, economists at YES Bank, explained that the rate-setting panel would wait to gain further insights into whether price pressures are becoming generalised in India. "However, October remains live, and a decision by the RBI to hike in October may also be contingent on a rate hike by the US Fed (Federal Reserve) in September, as is being expected by the markets," Pan and Vakharia said. The US Federal Open Market Committee's rate decision is due 2330 IST Wednesday. It is widely expected to raise the policy rate by 25 basis points.

 

Meanwhile, the RBI is expected to remain watchful of the second-round impact of food and fuel prices, which have been pushed upwards as the war in West Asia continues. Economists at HDFC Bank expect the RBI to remain in "wait and watch mode" at the October meeting, although they expect the tone to be "hawkish".

 

A few economists see an inevitable rate hike of at least 25 basis points now as they see inflation rising further in the next few months, inching closer to the upper end of the RBI's tolerance band of 2–6%. Economists at Systematix Institutional Equities expect the repo rate to be nearer 6.5% from the current 5.25?ter retail inflation crosses 5%, based on the RBI's projections until the June quarter. "Watch the early-October MPC meeting for the first signs of that pivot," they said. 

 

Nayar of ICRA expects the retail inflation prints to harden to around 6.0% during Oct-Nov, partly on account of the goods and services tax rationalisation-led low base. The upside risk to inflation is also seen because of the impact of the escalation of the war in West Asia and unfavourable weather conditions, while the country's economic growth remained resilient at 7.8% in the June quarter.

 

The second-order effects of higher input costs due to the war are likely to become more visible in the coming months, as producers pass them on to end consumers, given that growth is holding up better than expected and global commodity prices continue to remain high. The trajectory of food prices in early 2027 could set the stage for how long the rate-hiking cycle runs. "The moderation in Q4 (Jan-Mar) depends on winter disinflation in vegetable prices playing out, which may be at risk due to warmer temperatures," Gupta said.

 

The following are the expectations of economists at 16 institutions on the RBI's repo rate:

 

Organisation	October meeting rate hike expectation
ANZ Banking Research	No
Emkay Global Financial  Services	'High probability'
HDFC Bank	No
HSBC	Yes
ICICI Bank	'High probability'
ICICI Securities Primary  Dealership	Yes
ICRA	No
IDFC FIRST Bank	'High probability'
India Ratings and Research	No
Kotak Securities	No
MUFG Bank	No
Nirmal Bang Institutional  Equities	No
Nomura	No
State Bank of India	Yes
Systematix Institutional  Equities	Yes
YES Bank	No

 

End

 

US$1 = INR 95.95

 

Edited by Rajeev Pai

 

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