Home / Business and Economy / RBI Eyes Rate Hikes: Inflation Fears Mount
RBI Eyes Rate Hikes: Inflation Fears Mount
29 Sep
Summary
- RBI expected to raise repo rate by 25 basis points in October and December.
- Food and energy prices are driving the anticipated inflation surge.
- Rate hikes may be short-lived due to potential consumption slowdown.
The Reserve Bank of India is projected to implement a 25-basis-point increase to its repo rate in both October and December. This action is largely driven by persistent inflationary pressures stemming from elevated food and energy prices, with consumer inflation expected to rise to 6.3% in the fourth quarter of 2026.
Despite these anticipated hikes, the tightening cycle may prove to be short-lived. Nomura forecasts a slowdown in momentum from February 2027 onwards. This is attributed to concerns about a potential decline in consumer spending and a more favorable inflation outlook, with rates possibly falling below 4% by the second half of 2027.
Strong economic growth of 7.8% in the second quarter provides the RBI room to address inflation. However, downside risks such as deficient rainfall impacting crop output and higher food prices squeezing disposable incomes could limit the extent of policy tightening.
