New Delhi: Reserve Bank of India is likely to begin a rate hiking cycle at its October 7 meeting and to raise the repo rate to 6.25 per cent by the first half of 2027, as resilient growth and broadening inflation risks prompt a shift away from monetary accommodation, a report said on Tuesday.
The report from Bank of America (BofA) Securities said the bank has brought forward its earlier call for a December hike and raised its total tightening forecast to 100 basis points from an earlier 50 basis points.
The investment bank predicted an initial 25 basis points hike in October, a further 50 basis points by December 2026 and another 50 basis points in the first half of 2027.
The RBI is likely to move to a “calibrated tightening” stance in December, once the first 50 bps is done, the report noted.
Domestic growth remains resilient, with investment and credit demand holding up, while higher energy prices, food inflation and wider price pressures are strengthening the case for tighter policy.
The incoming data on domestic inflation and growth, coupled with a global backdrop of higher US rates and commodity prices provides little room to wait.
The report attributed the surge in the number of hikes largely to growing risks of greater supply side inflation, amid resurgent energy prices and risks of higher fuel prices.
Further, growth staying robust further raises risks of inflation expectations staying entrenched, which when combined together, result in a balance of risks biased more towards inflation management, rather than growth protection.
“We believe with credit demand improving, top line revenue growth picking up and pricing power visible, the need to keep monetary conditions accommodative has gone away, and RBI will eventually need to shift towards a tightening stance in coming quarters, even if supply side risks dissipate,” the report noted.
(IANS)
