17 hrs ago
RBI Seen Raising Repo Rate Amid Inflation and Oil Risks
The Reserve Bank of India may make borrowing slightly more expensive in October.
It could raise its key interest rate by 25 basis points.
Prices in India are rising faster, especially for food.
Oil has also become more expensive, which can raise costs across the economy.
Other major central banks have been raising interest rates too.
India’s economy is still growing strongly, with first-quarter FY27 growth at 7.8%.
Some economists think the RBI will make only small increases.
Others think it may need larger increases if inflation and oil prices stay high.
Economists expect the Reserve Bank of India to raise its repo rate by 25 basis points during its October 5–7 policy review.
Rising inflation, higher crude oil prices and global rate increases have strengthened the case for tightening.
Retail inflation rose to 4.82% from 4.45% in July, while food inflation reached 5.66%.
Brent crude increased from $80 to $102 per barrel, exceeding the RBI’s FY27 assumptions.
Analysts disagree on the likely scale of tightening, with estimates ranging from a shallow cycle to as much as 75–100 basis points.
- Who
- The Reserve Bank of India’s Monetary Policy Committee, economists and financial analysts.
- What
- The RBI is expected by several economists to raise the repo rate by 25 basis points in October.
- Where
- India, with the policy decision made by the Reserve Bank of India.
- When
- The policy review is scheduled for October 5–7; the RBI last held the rate at its August meeting.
- Why
- Inflation, food and crude oil prices are rising, while global central banks are tightening monetary policy.
Shallow Tightening
Deeper Tightening
Scale of rate increases
Shallow Tightening
Apoorva Javadekar of Shriram Finance said growth is moderating, rainfall deficits are hurting rural incomes, and the oil shock is demand-destructive, leaving little case for an extended tightening cycle.
Deeper Tightening
Radhika Piplani of Motilal Oswal Financial Services said the RBI may act before inflation broadening is fully visible and estimated 75–100 basis points of cumulative hikes under a sustained oil shock.
Need for an October hike
Shallow Tightening
Javadekar said there is little merit in using policy rates to defend the rupee and expects any tightening cycle to be shallow.
Deeper Tightening
Piplani said an October hike is a meaningful possibility if crude prices remain elevated and inflation expectations rise.
Key facts
- Current repo rate
- 5.25% after the RBI held it in August.
- Expected October move
- A 25-basis-point repo-rate increase.
- Retail inflation
- 4.82%, up from 4.45% in July.
- Food inflation
- 5.66%.
- Brent crude
- Rose from $80 to $102 per barrel.
- Q1 FY27 GDP growth
- 7.8%.
- Expected tightening range
- Most economists cited 50–75 basis points across the October and December meetings; one estimate put the potential cumulative increase at 75–100 basis points.
Quotes
Apoorva Javadekar
Chief economist at Shriram Finance.
“The RBI may not wait for the full broadening of inflation to become visible in 3Q data, particularly given the lag in monetary transmission. An October rate hike is therefore a meaningful possibility if crude remains elevated and inflation expectations begin to rise. Under a sustained oil-shock scenario, we see potential for 75–100bp of cumulative rate hikes in the current cycle.”
deccanchronicle.com
“Growth momentum is moderating, rainfall deficits are more damaging to rural incomes than inflation, and the oil shock itself is demand-destructive. Leveraged households and capex are particularly exposed to higher rates. We therefore expect any tightening cycle to be shallow and see little merit in using policy rates to defend the rupee.”
deccanchronicle.com
Sources
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