4 hrs ago
RBI Signals More Rate Hikes as Inflation Risks Persist
India’s central bank has raised its main interest rate for the first time in more than three years.
It also changed its message to show that more rate increases could happen.
The bank says it is watching inflation, which means prices rising over time.
Several economists think rates could go up again, but they disagree about how much.
One group expects a smaller increase followed by a pause, while others expect more increases.
Higher rates can make borrowing more expensive for families and businesses.
That can also make people and companies spend less.
The central bank says its next steps will depend on how prices and the economy change.
The RBI raised its policy rate by 25 basis points, the first increase in more than three years.
The central bank shifted its stance from neutral to calibrated tightening and said future action could be a hike or a pause.
HDFC Bank, UBS and SBI Funds Management expect further increases totaling about 50–75 basis points.
ICRA expects a 25-basis-point hike in December 2026 followed by a pause, absent sizeable inflation surprises.
The RBI cited an expected average headline inflation rate of almost 5.8% over the next three quarters.
- Who
- The Reserve Bank of India’s Monetary Policy Committee, led by Governor Sanjay Malhotra, and economists assessing its decision.
- What
- The RBI raised its policy rate by 25 basis points and signalled that further hikes may follow if inflation remains a concern.
- Where
- India.
- When
- The article discusses the latest policy decision and possible action at the December 2026 review.
- Why
- The RBI said inflation and its outlook are less benign than last year, and it wants to address price pressures.
More cautious outlook
More hawkish outlook
Scale and pace of further rate increases
More cautious outlook
ICRA expects one more 25-basis-point hike in December 2026, then a pause unless inflation surprises significantly to the upside.
More hawkish outlook
HDFC Bank, UBS and SBI Funds Management expect cumulative further hikes of around 50–75 basis points, with some anticipating consecutive increases.
Inflation and growth risks
More cautious outlook
ICRA’s baseline forecast is 5.0% inflation and 7.1% GDP growth for FY2027, while describing a larger hike cycle as a lower-probability possibility.
More hawkish outlook
UBS expects inflation above 5.5% for three consecutive quarters from Q3 FY27, and HDFC Bank identifies risks from energy prices, input costs and global volatility.
Key facts
- Latest policy move
- The RBI raised its policy rate by 25 basis points, its first hike in more than three years.
- Monetary stance
- The stance shifted from neutral to calibrated tightening.
- Possible further increases
- Several forecasters expect additional hikes totaling 50–75 basis points; ICRA expects 25 basis points in December 2026.
- RBI inflation outlook
- Governor Sanjay Malhotra said headline CPI inflation is expected to average almost 5.8% in the next three quarters, with core inflation projected at 4.4% this financial year.
- ICRA FY2027 baseline
- ICRA projects GDP growth of 7.1% and CPI inflation of 5.0%; it says elevated crude prices could lift inflation to 5.3–5.5% and slow growth to 6.8%.
- RBI medium-term inflation target
- 4% year over year.
Quotes
Tanvee Gupta Jain
UBS Chief India Economist
“It (MPC) underscored that given the current conditions, rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause, depending on the evolving conditions and the outlook”
indianexpress.com
“We expect a cumulative 50-75 bps rate hike cycle, with another 25bps hike likely in the December policy.”
indianexpress.com
ICRA
Economic research and ratings agency
“At present, we expect another rate hike of 25 bps in the December 2026 meeting, and a pause thereafter, unless there are sizeable negative surprises on the inflation front”
indianexpress.com
Sources
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