Reserve Bank of India May Raise Rates to Combat Inflation

The Reserve Bank of India is considering an interest rate hike later in 2026 to combat rising food inflation and maintain the attractiveness of domestic assets. The move comes as increasing bond yields in the United States narrow the interest-rate differential, creating a risk of capital outflows from the Indian market.

Deloitte Chief Economist Rumki Majumdar suggests a rate increase is most likely to occur in December rather than October. The central bank has previously kept rates steady to support domestic credit growth, which is currently near 20%. However, the pressure of global uncertainty and inflationary risks is shifting the policy outlook.

Despite these challenges, India's full-year economic growth is projected to remain strong between 7.1% and 7.4%, driven by pent-up demand and festive spending. Majumdar notes that while the broader economy remains resilient, Indian equity markets may stay flat as investors weigh high valuations against alternative global opportunities, including artificial intelligence.