The Reserve Bank of India (RBI) is likely to increase the repo rate by 0.25% in the October monetary policy review due to mounting inflationary pressure amid the re-escalation of the West Asia crisis and also the rate hikes by global central banks, according to economists and bankers.
If the RBI increases the rate in the upcoming policy, it would mark a reversal in the interest rate policy, which has witnessed rate cuts in 2025 and an extended pause thereafter, according to a PTI poll of 16 economists and bankers.
The last repo rate hike was in February 2023, when the RBI raised the rate by 0.25% to 6.50%; it then 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%.
"Coordination with global central bank hikes, rising inflation risks and strong growth momentum provide policy space to hike," said Kanika Pasricha, Chief Economic Advisor at Union Bank of India.
Further, 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.
A majority of participants in the PTI poll expect a rate hike with a hawkish tone at the upcoming policy review on Wednesday (October 7, 2026). The opinion seems divided on whether there will be a shift in stance.
Sachchidanand Shukla, group chief economist at Larsen & Toubro, however, feels that the RBI will again opt for status quo.
He reasoned that the RBI could wait before raising rates, as there is no evidence yet of demand-led inflation or overheating in the economy.
On the number of rate hikes expected in FY27, experts broadly see at least two increases, with several expecting two to three hikes over the course of the fiscal.
Experts said the RBI may need to gradually normalise its monetary policy stance as headline inflation rises, requiring a rate hike to ensure real interest rates do not turn negative in the coming quarters.
"Gradual normalisation of policy as headline inflation is higher. The rate hike is needed to ensure real rates are not negative in the coming quarters," said Gaura Sengupta, economist at IDFC First Bank.
On the policy stance, experts are divided between 'no change' and 'calibrated tightening', with some also favouring 'withdrawal of accommodation'.
On the policy tone, however, a majority of experts expect a hawkish stance, while a few see the tone as cautious, reflecting concerns over rising inflation and global rate movements.
The experts expect an upward revision to the RBI's FY27 CPI inflation forecast amid elevated crude oil prices, food inflation risks and broadening price pressures.
"The recent surge in crude oil prices to above $100/barrel could likely lead to an increase in the retail selling price (RSP) of petrol and diesel, and further generalisation of price pressures, which would necessitate an upward revision in the CPI inflation forecasts," said Aditi Nayar, chief economist, head-research and outreach at ICRA.
Apoorva Javadekar, chief economist at Shriram Group, said there will be a mild upward revision of 0.10% for Q3 and Q4 of FY27. "In fact, the upward revision to future inflation is almost a pre-condition for a rate hike, as otherwise the inflation is progressing on the projected path."
Rajani Sinha, chief economist at Careedge Ratings, said price pressures are becoming increasingly broad-based, with "around 19% of the 358 items in the CPI basket" recording inflation above 6% in August, up from 13% in March.
India's retail inflation accelerated to an eight-month high of 4.82% in August from 4.45% in July. CPI inflation has stayed above the RBI's 4% target for three straight months, climbing from 3.93% in May to 4.38% in June and 4.45% in July. The August print marked the highest level recorded so far under the new CPI series, which uses 2024 as its base year.
In August monetary policy, the Central bank projected CPI inflation for FY27 at 5.0% with Q2 at 4.7%, Q3 at 5.9%, and Q4 at 5.5%. Inflation for Q1:2027-28 is projected at 5.3%. Core inflation was projected at 4.3% for 2026-27.
On growth, experts largely expect the RBI to revise its FY27 GDP growth forecast upwards, with stronger-than-expected economic activity in the first half of the fiscal supporting the outlook, although some expect no change.
Radhika Rao, Senior Economist and Executive Director at DBS Bank, expects a "slight upward revision to above 7% growth".
The Central bank in its August monetary policy projected real GDP growth for 2026-27 at 6.7%, with Q1 at 7.0%, Q2 at 6.4%, Q3 at 6.5%, and Q4 at 6.8%. Real GDP growth for Q1:2027-28 was projected at 7.3%.
On liquidity management, experts expect the RBI to continue using variable rate reverse repo (VRRR) operations, open market operations (OMOs) and foreign exchange swap operations to absorb surplus liquidity from the banking system.