The report highlighted that the central bank’s inflation projections underestimate the growing risks from rising input costs, elevated household inflation expectations and broadening price pressures across the economy.
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“With the stance now tightening, we see significant upside risk to inflation beyond the projected 6% peak,” the report said.
According to the report, the RBI’s household survey showed inflation expectations averaging 9.1 per cent in September 2026, significantly higher than headline inflation and continuing to rise.
It noted that the RBI’s inflation diffusion index also indicated that price pressures were spreading across a wider range of categories, suggesting that inflation was becoming increasingly broad-based.
The report questioned the RBI’s assessment of limited demand and supply-side pressures, pointing to inconsistencies between the central bank’s inflation outlook and its acknowledgement of resilient domestic consumption, strong investment and continuing supply disruptions.It highlighted that the RBI attributed rising fuel inflation largely to an unfavourable base effect while simultaneously acknowledging supply-side risks from the deficient southwest monsoon, El Nino conditions and volatile international oil prices.
The report also pointed to mounting cost pressures on Indian companies, particularly manufacturers, as evidence of persistent supply-side inflation.
Input costs for non-financial companies rose around 40 per cent year-on-year in the first quarter of FY27, alongside a 45 per cent increase in crude oil prices. Gross margins contracted by 650-800 basis points as companies were able to pass on only part of the increase in costs to consumers.
It further warned that government subsidies on food, energy and fertilisers, along with under-recoveries at oil marketing companies, had cushioned the inflationary impact of the West Asia conflict.
“As this fiscal support wanes, pipeline inflation is likely to accelerate in the coming months and add to the existing momentum,” the report said.
On monetary policy, Systematix noted that the RBI’s 25-basis-point repo rate hike to 5.50 per cent and its shift towards calibrated tightening marked the beginning of a new rate-hike cycle.
However, it cautioned that the latest increase might not be sufficient to contain inflation, particularly as real interest rates remained negative when measured against elevated inflation expectations.
“Inflation could surprise to the upside and reach 6-7% in the coming quarters. Restoring a real rate of at least 1% would require further hikes and a terminal repo rate of 6.5-7%, or 100-150 bps above the current 5.5%,” the report stated.
The report also highlighted that the RBI had raised its FY27 GDP growth projection to 7.1 per cent from 6.7 per cent, following stronger-than-expected growth of 7.8 per cent in the first quarter.
Also Read: Economists see food, oil stoking India’s September inflation
At the same time, the central bank revised its inflation projections upwards, with inflation expected to reach 6 per cent in the third quarter of FY27, compared with its earlier projection of 5.9 per cent.
Systematix cautioned that continued inflationary pressures and further monetary tightening could create a double challenge for financial markets, with higher interest rates weighing on equity valuations while rising input costs and borrowing expenses squeeze corporate earnings.
The report also warned that the benchmark 10-year government bond yield, already around 7.24 per cent, could rise above 7.5 per cent if inflation exceeds expectations and the RBI continues raising interest rates.