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Informist, Monday, Sept. 28, 2026

MUMBAI – Nomura expects the Reserve Bank of India to raise the repo rate by 25 basis points each in October and December to 5.75%, terming the likely policy action a "recalibration" rather than the start of a prolonged tightening cycle. The brokerage said markets are pricing nearly 125 basis points of rate hikes over the next one year, which it considers excessive. 

Nomura assigned an 80% probability to the recalibration scenario, under which the RBI would raise rates by 25-50 basis points in total while retaining its neutral policy stance. A more aggressive tightening cycle involving more than 75 basis points of hikes would require clear signs of inflation broadening and inflation expectations becoming unanchored, it said.

The brokerage's assessment is based on the moderation in India's underlying inflation trend since 2023 and limited evidence of broader inflation pressures. Nomura's inflation generalisation index rose to 92.6 in August from 84.8 in January, but remained below the 100 mark, indicating that inflation generalisation is still weaker than its historical average. 

Nomura said food inflation remains the biggest near-term risk. A deficient monsoon and weaker kharif sowing have contributed to higher prices of sugar, vegetables, cereals and milk, though government measures could temper some of the increase. The brokerage also expects higher input costs to feed into core inflation with a lag. 

However, the brokerage said second-round inflation risks remain contained. Household inflation expectations are within the RBI's tolerance band, while rural wage growth has moderated and urban wage growth remains below its long-term average. 

Nomura expects headline CPI inflation to rise sharply in the near term, from 4.8% in August to around 6.3% in the December quarter and about 5.3% in the first half of 2027, before easing below 4% in the second half of 2027. It forecasts average CPI inflation at 5.2% in FY27 and 4.0% in FY28, while core inflation is seen at 4.3% and 4.0%, respectively.

On growth, Nomura said India's economy is steady but not yet on a self-sustaining trajectory. Its India Composite Leading Index fell to 99.8 in the fourth quarter of 2026 from 100.5 in the first half, signalling a risk of below-trend growth. Higher food inflation could squeeze real disposable incomes and discretionary consumption, while weaker crop output and possible fiscal consolidation could further weigh on growth. 

Nomura said the RBI could nevertheless opt for a pre-emptive hike to anchor inflation expectations as headline inflation rises. It expects the October and December meetings to deliver 25-basis-point hikes, while the February 2027 meeting remains "live" for policy action. The probability of further hikes should diminish from February as consumption growth slows and the year-ahead inflation outlook improves, it said.  End

Reported by Kabir Sharma

Edited by Avishek Dutta

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