Oil is the common thread in every forecast. India imports most of its crude, so prices above $100 a barrel feed straight into inflation and the trade deficit, while higher US yields pull capital out of emerging markets and weigh on the rupee. A hike today would be largely expected, so the reaction is likely to turn on guidance: signals of a second move in December would support the rupee and push short-dated government bond yields higher. A hold, as MUFG expects, would be the bigger surprise and could weaken the rupee in the near term, although the RBI’s large reserves give it room to lean against any sharp fall. Any announcement on draining surplus liquidity would act as a tightening in its own right, whatever happens to the repo rate.
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The debate over the Reserve Bank of India is no longer whether it tightens but when, with most economists saying today and MUFG saying December.
Summary:
- The Reserve Bank of India announces its policy decision today at 10:00 am India time (04:30 GMT, 00:30 ET)
- A Reuters poll found 35 of 61 economists expect a 25bp hike to 5.50%, which would be the first increase since February 2023
- Nomura expects hikes today and in December, taking the repo rate to 5.75%
- MUFG is an outlier, expecting a hold at 5.25% today but forecasting 25bp hikes in December and February
- Higher oil prices, broadening inflation, abundant liquidity and pressure on the rupee from rising US yields underpin the case for tightening
The Reserve Bank of India is expected to raise interest rates for the first time in more than three years when it announces its policy decision today, although forecasters are split on timing, with MUFG standing apart from the consensus in predicting a hold.
The six-member Monetary Policy Committee will announce its decision at 10:00 am India time (04:30 GMT, 00:30 ET). The repo rate has been held at 5.25% for four straight meetings, following 125 basis points of cuts in 2025.
A Reuters poll published on 28 September found that 35 of 61 economists expect a 25 basis point increase to 5.50% today, which would be the RBI’s first hike since February 2023. More than half of those who gave a longer-term view expect at least one further increase by December. Nomura is among those forecasting back-to-back moves, with hikes today and in December taking the repo rate to 5.75%. Economists at India’s largest lender said the balance of risks had tilted decisively toward a hike, citing broadening inflation, a worsening global backdrop and renewed repricing of risk in financial markets.
MUFG takes a different view on timing. It expects the RBI to hold today but sees the pause as temporary, forecasting 25 basis point hikes in December and February, with some risk of 75 basis points in total across the cycle. The bank cites higher oil prices, weather-related risks, resilient domestic demand and plentiful banking system liquidity as factors likely to keep price pressures elevated into 2027. It also says rising US yields are putting pressure on the rupee, although the RBI has ample reserves to defend the currency. Even its full forecast would amount to less tightening than rates markets are currently pricing, MUFG said.
The split is about when, not whether. Both camps point to the same drivers: crude oil above $100 a barrel as a result of the Middle East conflict, inflation that has moved back above the RBI’s 4% target, and a global environment in which central banks in the US, UK and Japan have already raised rates.
Beyond the headline decision, investors will watch for any change to the RBI’s neutral stance, revisions to its inflation and growth forecasts, comments on the rupee, and possible steps to absorb surplus liquidity. The next policy meeting concludes on 4 December.
This article was written by Eamonn Sheridan at investinglive.com.