MUMBAI: The Reserve Bank’s Monetary Policy Committee began its three-day meeting on Monday and is likely to raise rates by 25 basis points, aligning with the central banks’ hawkish stance amid escalating conflicts in West Asia that pose risks for domestic inflation.
An interest rate hike by the RBI in its upcoming monetary policy would mark a stance reversal, following rate cuts in 2025 and a prolonged pause thereafter, according to a poll of 16 economists and bankers.
“Insights, assessments, and the way forward-set to unfold soon,” the Reserve Bank said in a social media post while announcing that the monetary policy statement will be announced on October 7 at 10 am.
The last repo rate hike was in February 2023, when the RBI raised the rate by 0.25 per cent to 6.50 per cent. It kept the rate unchanged through 2023-24 before beginning its rate-cut cycle in 2025. Currently, the RBI’s policy repo rate stands at 5.25 per cent.
A majority of participants in the poll expect a rate hike with a hawkish tone at the upcoming policy review on Wednesday. The opinion seems divided on whether there will be a shift in stance.
Meanwhile, Madan Sabnavis, Chief Economist, Bank of Baroda, was of the view that the Reserve Bank will continue with the status quo on the short-term lending rate (repo) on Wednesday.
“While we do believe that the next interest rate cycle will be of 50-75 bps in the upward direction, we think there will be a pause this time in October,” he said.
Sabnavis further said that a pause can help to moderate bond yields too, as the market is expecting one now.
“Waiting till December will be prudent when we actually know how the kharif crop has fared and the CPI inflation rate for September and October,” he said, adding that the RBI could marginally raise its forecasts of GDP and inflation.
Goldman Sachs report said the August MPC minutes were materially more hawkish than the policy statement. Members acknowledged that food and fuel-driven inflation could generate second-round effects and indicated that broader, and more persistent price pressures would warrant policy action.
“We therefore bring forward our RBI forecast to 25 bps repo rate hikes in October and December 2026. The MPC may also shift its stance from ‘neutral’ to ‘calibrated tightening’ or ‘withdrawal of accommodation’,” it said.
Dipti Deshpande, principal economist at Crisil, said that since the last policy, inflationary pressures have mounted further mainly due to the re-escalation of the West Asia conflict and the pressure on energy and commodity prices. If these pressures persist, further rate hikes are expected.
Sunil Pareek, Executive Director, Assetz said that from a residential real estate perspective, stability in interest rates would certainly be supportive of homebuyer sentiment, particularly in view of the festive season.
“A calibrated monetary policy that keeps inflation anchored without significantly increasing the cost of home ownership would be the most constructive outcome for the residential sector,” Pareek added.
Vineet Nahata, Director of Power Gilt Treasuries, said that given the recent rise in bond yields globally, a 50-basis-point hike by the MPC would not come as a surprise.
“If not 50 basis points, MPC would definitely pitch for 25 basis points,” he said.
Shrikant Goyal, Managing Director, Getfive Funds, said that with the festive season approaching, MSMEs are preparing for a pickup in orders, and timely working capital will be key to making the most of it.
“We expect the MPC to hold the repo rate and maintain a neutral stance, which will give borrowers and lenders the predictability they need to plan ahead,” he said.
India’s retail inflation accelerated to an eight-month high of 4.82 per cent in August from 4.45 per cent in July.
The RBI has been mandated by the government to ensure CPI inflation remains at 4 per cent with a margin of 2 per cent on either side.
