The Reserve Bank of India (RBI) may hike interest rates by another 50 basis points over the coming months, bringing the cumulative tightening in this cycle to 75 basis points, according to analyst projections.
The Monetary Policy Committee (MPC) kicked off its tightening cycle on Wednesday with a 25-basis-point increase in the repo rate to 5.5 per cent, shifting its stance to “calibrated tightening” to signal an extended phase of dearer money.
Brokerages noted that the rate action reflects rising inflation risks stemming from elevated crude oil prices and global volatility, even as robust domestic growth provides policy room to manoeuvre.
Emkay Global retained its call for 75 bps of cumulative hikes in this cycle, pencilling in two further 25-basis-point hikes in December 2026 and February 2027.
Emkay said that the central bank has prepared markets for a “higher-for-longer rate environment”, driven by sticky overseas interest rates and elevated energy costs. It also noted that money markets still retain substantial core liquidity of roughly ₹9.5 lakh crore, alongside a government cash surplus of around ₹5 lakh crore, which the central bank is seeking to manage through tactical sterilisation.
Elara Capital echoed the forecast of another 50 basis points of tightening, noting “growth comfort provides room to fight inflation”.
With the RBI lifting its FY27 economic growth projection to 7.1 per cent from 6.7 per cent, Elara pointed out that strong consumer demand allows firms to pass on higher input costs.
It expects a 25-basis-point increase in December, followed by a likely move in February 2027, maintaining that a cumulative tightening of 50 to 75 basis points will not derail India’s growth momentum.
The central bank also lifted its FY27 headline inflation projection to 5.2 per cent from 5 per cent, with price pressures expected to peak near 6 per cent in the third quarter.
JM Financial described the move as the start of a ‘shallow rate hike cycle’. It underscored that “rate cuts are off the table” for now, noting that capital outflows prompted the front-loaded increase, a narrowing India-US interest rate gap, and a $38 billion drop in forex reserves during September.
JM Financial added that external oil price trajectories will ultimately dictate how far the central bank is willing to tighten.
On the sectoral front, brokerage notes flagged an immediate impact on rate-sensitive segments.
Elara Capital cautioned that hardening yields and rising policy rates will push up borrowing costs for non-banking financial companies (NBFCs) and weigh on banks’ treasury gains in the second half of the fiscal year.
However, JM Financial observed that the central bank does not foresee asset quality risks in the NBFC space, expecting economic momentum to hold even as credit growth moderates.
Disclaimer: This article has been written by the author, who is not a SEBI-registered research analyst or investment adviser. The recommendations, suggestions, views and opinions expressed by experts and brokerages are their own and do not represent the views of ETGovernment. This article should not be construed as investment advice.
