RBI May Limit Rate Hikes To 25–50 Basis Points, Report Sees Inflation Cooling In 2027
New Delhi: The Reserve Bank of India (RBI) may raise interest rates by only 25–50 basis points in the current cycle, according to Nomura. The brokerage said markets were expecting a much steeper rise than the inflation outlook appeared to justify. Nomura assigned an 80 per cent probability to a limited adjustment in the repo rate, rather than a broader tightening cycle of more than 75 basis…
The Reserve Bank of India (RBI) may only raise interest rates by 25–50 basis points in the current cycle, according to Nomura. The brokerage's analysts believe the current level of inflation justifies a more limited increase rather than a significant tightening cycle. Nomura assigns an 80% probability to a limited adjustment in the repo rate, as opposed to a broader increase of over 75 basis points.
Markets are pricing in nearly 125 basis points of hikes over the next year, but the RBI's central forecast is for a 25 basis point hike in October and another 25 basis points in December, bringing the repo rate to 5.75%. The brokerage also sees the possibility of just one rate hike from the central bank. The underlying price pressures have eased, with core inflation falling from around 5% to about 3%.
Core inflation, which excludes volatile food and fuel prices, helps indicate whether price rises are spreading across the economy. RBI Deputy Governor Rohit Jain highlighted that banks are likely to deploy excess liquidity as credit demand strengthens.
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