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Investors are increasingly betting that the Reserve Bank of India will raise interest rates this week as inflation accelerates, economic growth remains strong and major global central banks adopt more hawkish policies.
A Reuters poll showed 35 of 61 economists, nearly 60%, expect the RBI to raise its benchmark repo rate by 25 basis points at Wednesday’s policy meeting. Swap markets are even more confident, fully pricing in a rate increase.
A hike would be the RBI’s first in almost four years, lifting the repo rate from 5.25%, where it has remained for nearly 10 months. The Monetary Policy Committee cut borrowing costs by a cumulative 125 basis points in 2025 from 6.5%.
Rahul Bajoria, India and ASEAN economist at BofA Global Research, said resilient growth, broadening inflation and reduced global uncertainty leave the RBI with little reason to delay. BofA expects an October hike to begin a 100-basis-point tightening cycle, with further increases potentially coming in December and during the first half of 2027.
India’s consumer inflation accelerated to 4.82% in August, exceeding the RBI’s 4% medium-term target for a third consecutive month. Price pressures have also spread beyond food and fuel, while the economy expanded 7.8% in the April-June quarter.
The Federal Reserve and Bank of Japan are among major central banks that have already raised rates since the US-Israeli war with Iran began seven months ago. Analysts warn that an RBI decision to hold rates could pressure the Indian rupee and longer-dated government bonds. The rupee remains roughly 1% above its record lows reached in May.
Expectations differ over the scale of tightening. Nomura and Barclays forecast a relatively modest 25-50 basis points of hikes, while ANZ, BofA and Goldman Sachs expect 75-100 basis points.
Swap markets currently price around 100 basis points of RBI rate hikes over the next year and about 140 basis points over two years. Investors will closely watch the RBI’s inflation and growth forecasts and any change from its current “neutral” stance for signals about the future rate path.
