Industry Odisha Bureau, Oct 05: Nine of ten economists expect a 25-basis-point RBI rate hike on 7 October. Inflation risks mount as global rates climb and growth holds firm. A neutral stance should keep options open.
Until recently, economists expected India’s next rate hike in December or February. That timetable has now moved forward. Rising prices, costlier oil and tighter global money have shifted the balance of risks.
October comes into view
Nine of ten economists surveyed by Mint expect a 25-basis-point increase on 7 October. That would lift the RBI repo rate to 5.50%, its first rise since February 2023. Only Bank of Baroda’s economist expects the Monetary Policy Committee to hold.
All ten expect the MPC to keep its neutral stance. That would let policymakers tighten without committing to a long hiking cycle. Sameer Narang of ICICI Bank says the global setting could shift again.
Price pressures broaden
Consumer prices rose 4.8% in August, a 22-month high. That sits above the RBI’s 4% midpoint target. The pressure is now spreading beyond a few food items.
A deficient monsoon is lifting food prices. Elevated crude and rising global commodity costs add to the strain. A weakening rupee is also feeding imported inflation.
The RBI’s August forecast put FY27 CPI inflation at 5%. Several economists expect that estimate to rise. Barclays’ own forecast is 4.8%, with upside risks if crude stays above $100 a barrel. Gaura Sengupta of IDFC FIRST Bank expects 5.2%.
Oil and the Fed add pressure
The global backdrop has also hardened. The US Federal Reserve raised rates in September, and more tightening is expected. US Treasury yields remain elevated.
Goldman Sachs says this strengthens the case for earlier RBI action. Renewed Middle East conflict also poses upside risks to crude, it notes. Goldman expects 25-basis-point hikes in October and December. Barclays now expects the same, having earlier forecast December and February 2027.
Growth buys room
Strong growth is the other side of the equation. GDP grew 7.8% in April–June, 80 basis points above the RBI’s August forecast. High-frequency indicators suggest second-quarter momentum stayed firm, though some moderated.
That may let the RBI put price stability ahead of demand. Economists expect its 6.7% FY27 growth forecast to be raised. Barclays projects 7.1%, and Sengupta about 7.5%. She still sees second-half moderation from a high base, weaker rural demand and margin pressure.
Earlier, but shallower
Earlier action need not mean aggressive action. Most forecasts cluster around 50–75 basis points of cumulative tightening. The cycle may run through December or February 2027.
That is modest by recent standards. The last cycle, from May 2022 to February 2023, totaled 250 basis points. BofA Global Research is more hawkish. It has raised its cumulative forecast to 100 basis points from 50.
The lone dissent
Madan Sabnavis, chief economist at Bank of Baroda, expects no change in October. A hike just before the festival season could hurt consumption, he argues. Waiting for September and October inflation data could add clarity. A pause could also help temper bond yields, he says. Still, he expects 50–75 basis points of hikes over the cycle. His disagreement is about timing, not direction.
Draining surplus cash
Liquidity is the other lever. India garnered $143.6 billion between 8 June and 31 August. Inflows came via foreign currency non-resident deposits and external commercial borrowings. Offshore foreign currency borrowings also contributed. The result is surplus cash in the banking system.
Economists expect the RBI to keep absorbing it. Tools may include overnight and term variable rate reverse repo (VRRR) operations. Open market operation sales and swaps are also expected. Each pulls spare funds out, reinforcing tighter policy.
Inflation regains priority
The policy balance has clearly tilted. Inflation and external risks have risen while growth holds up. For most economists, the debate has moved from whether to tighten to when. The 7 October decision will show how quickly the RBI responds.
