Union Bank of India Forecasts RBI Rate Hikes in December

The Union Bank of India predicts that the Reserve Bank of India will initiate a rate hike cycle in December, potentially increasing the repo rate from 5.25 percent to a range between 5.75 and 6 percent during the second half of FY27. This forecast is based on rising inflation, strong economic growth, and tightening global financial conditions.

Foreign exchange inflows reached approximately 136 billion USD as of August 31, creating a surplus of banking liquidity. The Union Bank of India identifies this excess liquidity as a primary policy challenge for the central bank. To address the surplus, the bank expects the Reserve Bank of India to deploy liquidity absorption measures, such as incremental cash reserve ratios or variable rate reverse repo operations, before the October policy meeting.

While December is the projected start for rate hikes, the Union Bank of India notes that an October hike remains possible if the Federal Reserve System raises interest rates in September.