Deutsche Bank said its report that it expects a 25-basis-point rate hike in December 2026, followed by another 50 basis points of tightening in the first half of 2027. The forecast is more hawkish than market consensus, reflecting expectations of sustained growth above 7 per cent alongside inflation remaining elevated.
The report projects consumer price index (CPI) inflation to average 6 per cent in October-December 2026, 5 per cent in FY27 and 4.7 per cent in FY28. It flagged upside risks if domestic fuel prices are increased after Diwali, while wholesale price inflation above 11 per cent could lead to further cost pass-through into consumer prices.
Household inflation expectations have also risen to 10 per cent from 8 per cent before the West Asia conflict, increasing the risk of second-round price pressures, the report said.
Despite these headwinds, Deutsche Bank expects India’s real GDP growth to remain above 7 per cent in both FY27 and FY28. However, growth momentum could moderate in the second half of FY27 due to higher oil prices, a below-normal monsoon and an adverse base effect from the previous year’s GST rate cuts.
The report also highlighted risks to the rupee, despite recent RBI measures that temporarily reduced dollar demand and helped the currency recover to around Rs 94.50 against the US dollar. Foreign exchange reserves have declined by around USD 60 billion from their early-September peak of USD 786 billion.
Deutsche Bank expects the rupee to weaken beyond Rs 97 per dollar during 2027 in the absence of a meaningful improvement in the global macroeconomic environment.On the fiscal front, the bank expects the Centre to meet its FY27 fiscal deficit target of 4.3 per cent of GDP, supported by the RBI’s dividend and potential expenditure adjustments. However, it cautioned that fiscal consolidation could become more challenging in FY28 due to elevated oil prices, higher subsidy requirements and the expenditure implications of the 8th Pay Commission.
The bank said maintaining price stability alongside financial stability would remain critical as India navigates external economic uncertainty.