2 days ago
Experts Split on Possible RBI October Interest Rate Hike
Experts disagree about whether India’s central bank will raise interest rates in October.
Some economists think higher inflation and expensive oil make a rate increase necessary.
India’s economy is also growing strongly, which could support a hike.
Other experts say the bank may wait because there is already a lot of money available in the banking system.
The central bank has been trying to remove some of that extra money.
One economist thinks rates could rise twice, in October and December.
Another expects a possible third increase depending on future data.
A research firm believes the RBI may keep rates unchanged in October.
The final decision will depend on inflation, liquidity and economic conditions.
India’s CPI inflation rose to 4.82% in August 2026 from 4.45% in July, while food inflation reached 5.95%.
Crude oil prices above $100 per barrel, a weak monsoon and higher wholesale inflation could intensify price pressures.
India’s GDP grew a stronger-than-expected 7.8% in April–June, potentially giving the Reserve Bank of India room to raise rates.
Several economists expect a 25-basis-point hike in October, with some forecasting additional increases in December and later meetings.
India Ratings and Research expects rates to remain unchanged in October, citing surplus liquidity and uncertainty over the RBI’s next move.
- Who
- The Reserve Bank of India’s Monetary Policy Committee, economists and financial research firms.
- What
- The RBI is considering whether to raise its repo rate at the October monetary policy meeting.
- Where
- India, with global effects from the US-Iran conflict and higher international crude oil prices.
- When
- The decision is expected at the October meeting; the article cites inflation data for August 2026.
- Why
- Inflation and energy prices have risen, while strong economic growth supports a hike; however, surplus banking-system liquidity could encourage the RBI to wait.
Rate Hike Expected
Hold Possible
Inflation and energy prices
Rate Hike Expected
HSBC, Axis Capital, Tata Asset Management and Emkay Global Financial Services economists say rising inflation, higher energy prices and strong growth support an October hike.
Hold Possible
India Ratings and Research says the RBI faces a combination of rising inflation and surplus liquidity, making the policy response less straightforward.
Expected policy path
Rate Hike Expected
Pranjul Bhandari and Prateek Ancha expect hikes in October and December; Murthy Nagarajan expects hikes at each policy meeting, potentially taking the repo rate to 6% by March 2027.
Hold Possible
India Ratings and Research expects the RBI Monetary Policy Committee to keep rates unchanged in October.
Role of liquidity
Rate Hike Expected
Supporters of a hike argue the RBI should follow through on the hawkish tone of its previous meeting as inflation risks have materialized and growth remains strong.
Hold Possible
Vikram Chhabra says the RBI may first absorb additional excess liquidity through open-market operations and foreign-exchange sell-buy swaps; a rate hike could become more likely later if inflation continues rising.
Key facts
- August CPI inflation
- 4.82%, up from 4.45% in July 2026
- August food inflation
- 5.95%, compared with 5.52% in July
- April–June GDP growth
- 7.8%, better than expected
- Crude oil prices
- Above $100 per barrel
- System liquidity
- Approximately Rs 10 lakh crore, according to Axis Capital
- Potential hike forecast
- Several economists expect a 25-basis-point increase in October
- Dissenting forecast
- India Ratings and Research expects rates to remain unchanged in October
Quotes
Pranjul Bhandari
Chief India economist at HSBC
“Despite recent liquidity draining measures, including durable measures like sell-buy swaps and Rs 1 lakh crore in OMO sales, banking system liquidity remains elevated at roughly Rs 10 lakh crore. We estimate the RBI may need to absorb another Rs 4 lakh crore before overnight rates consistently track the policy rate making further liquidity operations a prerequisite for any policy rate increase.”
businesstoday.in
“Acting early signals a response to prospective inflation, strengthening credibility. That can do more than the mechanical impact of a 25 bps hike as it anchors expectations, supports the currency, and reduces the inflation risk premium.”
businesstoday.in
Murthy Nagarajan
Head of fixed income at Tata Asset Management
“CPI inflation is expected to be above 5% for the current financial year and around 4.5-5.0% for the next financial year. Given a strong economy and CPI inflation averaging above 5% in the coming months, we expect rate hikes in each of the policy meetings from RBI taking the repo rate to 6% by March 2027.”
businesstoday.in
Sources
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