Why RBI may raise repo rate by 100 bps through H1 2027

The Reserve Bank of India (RBI) may raise the repo rate by a cumulative 100 basis points through the first half of 2027, with Bank of America (BofA) Securities bringing forward its forecast for the first rate hike to October from December.

In its latest India Viewpoint report, BofA Securities expects the RBI to raise the repo rate by 25 basis points at its October 7 monetary policy meeting. It expects another 75 basis points of rate hikes thereafter, taking the projected terminal repo rate to 6.25 per cent.

The brokerage had earlier forecast a total 50-basis-point increase in the repo rate.

“Our bigger forecast shift is arguably the quantum of hikes, as we are raising our total quantum of hikes from 50 bp earlier to 100bp now,” BofA Securities said.

According to the brokerage, the RBI has less reason to wait, as domestic economic growth remains resilient, while inflation risks are becoming broader.

BofA Securities pointed to crude oil prices staying around USD 100-110 per barrel for most of September, along with rising risks of fuel price increases and food-related supply pressures.

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The brokerage expects the RBI to deliver 50 basis points of rate hikes in the fourth quarter of 2026 and another 50 basis points in the first half of 2027.

It also expects the central bank to change its monetary policy stance in December to “calibrated tightening”.

BofA Securities said strong economic growth is reducing the need for the RBI to maintain accommodative monetary conditions. Non-food credit growth stood at 17.8 per cent year-on-year in September, while investment demand is expected to remain healthy in the second quarter of FY27.

The report also flagged increasing inflation risks, with food inflation becoming more broad-based and wholesale inflation increasingly spreading to other sectors. Tradables inflation rose to 5.9 per cent in August 2026, according to the report.

BofA Securities said the RBI could raise interest rates by more than 100 basis points if real GDP growth remains around 7 per cent and headline inflation stays close to 5.5 per cent.

In such a scenario, front-end interest rates could rise above 6.5 per cent, the brokerage said.

However, a significant slowdown in economic growth could result in fewer rate hikes or no hike, according to the report. This could happen if growth falls below 7 per cent and moves towards 6 per cent on a forward-looking basis.