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Informist, Monday, May 11, 2026

 

MUMBAI – HSBC Global Investment Research Monday said it expects headline inflation in India to rise to 5.6% in the financial year 2026-27 (Apr-Mar) because of the combined effect of a rise in energy prices and the expected onset of the El Nino climate pattern. This is up sharply from the estimate of 4% it had offered at the beginning of 2026. India's GDP growth is seen at 6% in FY27, HSBC Global said in a note.

 

The HSBC economists raised their forecast on the trajectory of the repo rate to two rate hikes over Oct-Mar by the Reserve Bank of India's Monetary Policy Committee, to 5.75%, compared to an earlier forecast of no change in the rate in the same period. "We estimate that the price and quantity disruptions in energy sources can shave off around 1 percentage point from growth," they said in the note. "An El Nino could shave off a further 0.3 percentage points from growth."

 

The informal sector, comprising rural workers and urban informal workers, will be affected in a big way during supply shocks. Farmers will be directly affected by heatwaves, according to the report. High energy inflation is likely to affect both rural and urban informal workers, as they consume two-thirds of the total. The government is expected to come up with credit guarantee schemes, rural unemployment benefits, and public capital expenditure, according to the report.

 

"The heatwave of March 2022 lowered the sugar cane crop yield by 30%, while hurting the production of vegetables, as well as oilseeds," HSBC Global said. El Nino leads to reduced rainfall and high temperatures in the Indian subcontinent, which in turns pushes up food inflation and results in lower economic growth.

 

The possibility of a rise in temperatures is higher than expectations of low rains, the report said. The monsoon was good in FY20 and FY25, despite both being El Nino years, but temperatures were higher than normal in those years.

 

The probability of a rise in temperature in El Nino years is getting higher. If the temperature rises in line with the 10-year average, then inflation could be 50 basis points higher, according to the report. If El Nino takes place later in 2026, then its impact would be felt in 2027. An intense El Nino could lead to a sharper rise in prices, whereas full grain storage could ease the inflationary pressures, as per the report.

 

For the forecast, HSBC Global assumed a rise of INR 6–7 per litre in petrol and diesel prices. If the price of crude oil averages $95 per barrel in FY27, then inflation could rise by 1.3%, it said. The inflation forecast for FY27 at the beginning of the year was 4%.  End

 

US$1 = INR 95.31

 

Reported by Cassandra Carvalho and Durgesh Nandan

Edited by Rajeev Pai

 

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