The Reserve Bank of India is likely to raise its policy rate by 25 basis points each in October and December, taking the repo rate to 5.75%, as food and energy prices push inflation higher, PTI reported on Tuesday, citing Japanese brokerage Nomura.
The brokerage, however, expects the rate-hike cycle to lose momentum from February 2027 as higher prices begin to weigh on demand and the inflation outlook softens.
“We see the probability of rate hikes diminishing from February 2027 onwards, because of a potential consumption slowdown and a lower year-ahead inflation outlook,” Nomura said in the report.
The view comes as inflationary pressures are broadening even as parts of the economy show signs of resilience. Nomura expects consumer inflation to rise from 4.8% in August to 6.3% in the fourth quarter, before easing to around 5.3% in the first half of 2027 and falling below 4% in the second half.
It forecasts average CPI inflation at 5.2% in FY27 and 4% in FY28.
The brokerage said the RBI could still opt for a “one-and-done” hike, but its base case is for a 25-basis-point increase in both October and December, as per PTI.
Inflation versus growth
The expected rate increases come against a backdrop in which stronger-than-expected growth is giving the RBI some room to focus on rising prices, while emerging risks to consumption could eventually limit how far it tightens policy.
India’s real GDP growth surprised on the upside at 7.8% year-on-year in the second quarter, while bank credit growth remained strong at 19.1% in August, Nomura said.
But the brokerage sees growing downside risks to the outlook. Deficient rains could hurt both kharif and rabi crop output, weighing on rural consumption, while higher food prices could squeeze real disposable incomes and reduce demand for discretionary goods.
“Food inflation is the biggest risk to the near-term inflation outlook,” Nomura said, pointing to deficient monsoons and weaker kharif sowing.
Government measures on sugar and onions could limit some price increases, it said, but lower crop output continues to pose upside risks to food inflation.
Nomura also flagged a potential drag from developments in artificial intelligence on India’s software-services sector. The country’s software-services surplus fell to $51.4 billion in the second quarter of 2026 from a peak of $53 billion in the fourth quarter of 2025.
Reuters poll sees December hike too
Nomura’s forecast broadly aligns with expectations in a recent Reuters poll, which also pointed to a two-step rate-hike cycle, although its near-term forecast was for the first increase to take the repo rate to 5.50% in October.
Also Read: Broadening inflation, robust growth, global hikes build case for India RBI tightening
Nearly 60% of economists polled by Reuters, which is 35 of 61, expected the Monetary Policy Committee to raise the repo rate by 25 basis points at its October 5-7 meeting. That would be the first increase since February 2023.
A slim majority, 29 of 53 economists, also expected at least one more 25-basis-point increase by December, taking the rate to 5.75%.
The Reuters poll marked a shift from the previous month's survey, when median expectations were for the RBI to keep rates unchanged until March next year.
Economists cited both inflation and currency pressures as reasons for the expected shift. Consumer inflation rose to 4.82% in August, above the RBI’s 4% medium-term target for a third consecutive month, while the rupee has weakened about 6% against the US dollar this year.
Minutes of the RBI’s August policy meeting also showed several policymakers, including Governor Sanjay Malhotra, favouring a rate increase if inflationary pressures broadened.
“We expect the RBI to start the hiking process in October. Inflation is tracking higher than the RBI’s forecast for the current quarter, and the rise is fairly broad-based,” Abhishek Upadhyay, co-head of economics and fixed income research at ICICI Securities Primary Dealership, told Reuters.
Why the hiking cycle may be short
The common thread in both forecasts is that the RBI may have to respond to a near-term inflation shock without turning it into a prolonged tightening cycle.
Nomura expects food and energy prices to keep cyclical pressure on inflation over the next six months, but sees that pressure eventually dampening demand and bringing inflation back towards target.
Core CPI inflation is forecast at 4.3% in FY27 and 4% in FY28.
At the same time, weaker agricultural output, higher food bills and softer discretionary spending could make additional rate increases increasingly difficult to justify once the immediate inflation pressure fades.
Nomura also said financing India’s widening current-account deficit could become more challenging amid an unfavourable portfolio-flow backdrop, the fading impact of FCNR(B) inflows and high energy prices.
The Reuters poll, meanwhile, showed economists expected the repo rate to remain at 5.75% until at least mid-2028, pointing to a relatively shallow hiking cycle even if the RBI begins raising rates again this year.
