India’s central bank will likely raise interest rates at successive meetings into next year as broadening price pressures push it deeper into a global tightening cycle.
A growing number of economists, including those at Goldman Sachs Group Inc., Standard Chartered Plc., Deutsche Bank AG and Morgan Stanley & Co. are predicting a follow-up 25-basis-point increase at the Reserve Bank’s next decision on December 4. Some see a further half-point of tightening in the first half of 2027, taking the policy rate to a two-year high of 6.25%, from 5.5% now.
Governor Sanjay Malhotra didn’t sound worried about the rupee’s level on Wednesday though he did say that the currency may be undervalued, while adding “markets can be quite irrational in the short run. That would put India’s benchmark rate among the highest in Asia, underscoring how quickly the inflation outlook has deteriorated for a central bank that was still cutting rates less than a year ago. He reiterated that the RBI’s focus is on curbing excessive volatility rather than steering it toward a particular level. For now, strong growth gives the RBI room to respond.
He expects at least another 75 basis points of hikes, citing “growth remaining resilient, price pressures getting broad-based and El Nino-related food inflation risks likely to intensify in 2027. The economy expanded 7.8% in the April-June quarter, beating the central bank’s forecast.
Goldman’s Santanu Sengupta said the investment bank’s measure of the RBI’s policy tone showed a “material increase in the hawkishness” of its communication compared with August. “The RBI hasn’t signed up for a specific quantum of hikes; it can hike or stay on hold in every meeting,” she said, pointing to the RBI’s experience in 2018. The central bank adopted “calibrated tightening” that October after two hikes earlier in the year, but never raised rates again before eventually reversing course.
