Reserve Bank of India Weighs Rate Hikes to Fight Inflation

The Reserve Bank of India is scheduled to announce its monetary policy decision on Wednesday following a three-day Monetary Policy Committee meeting held from October 5 to 7. The central bank is weighing whether to immediately raise the repo rate from its current level or delay action until December 4, where a 25-basis-point increase is predicted.

Economists are divided on the timing, but many anticipate a tightening cycle of up to 75 basis points to address inflation risks. Projections suggest CPI inflation could exceed 5 per cent in FY27, driven by crude oil prices near USD 100 a barrel and deficient monsoon conditions. Some analysts from Goldman Sachs Group Inc., Standard Chartered Plc., Deutsche Bank AG, and Morgan Stanley & Co. forecast further tightening in the first half of 2027, which could push the policy rate to a two-year high of 6.25%.

External pressures are contributing to the decision, including elevated US bond yields and a recent 25-basis-point rate hike by the Federal Reserve Bank of the US. Additionally, the central bank is managing surplus liquidity from a special forex swap facility that mobilized USD 132.98 billion as of August 31.