RBI seen joining Asia’s rate-hike push as inflation risks rise

The Reserve Bank of India will likely tighten monetary policy in coming months, bringing it in line with regional peers that have turned more hawkish in response to inflationary pressures stemming from the Middle East conflict, economists said.

The expectations follow Governor Sanjay Malhotra‘s signal Friday that policymakers could raise interest rates if inflation pressures become more generalized and persistent. The central bank also lifted its inflation forecast for the fiscal year ending March 2027 to 5.1% from 4.6%, after leaving benchmark rate unchanged at 5.25%.

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The RBI’s commentary on inflation “opens the door for rate hikes in the next meeting” in August, according to Pranjul Bhandari, chief India economist at HSBC Holdings Plc. That would mark the RBI’s first rate hike since February 2023.

Following Friday’s policy decision, Bhandari brought forward her forecast for tightening and now expects rate increases in August and October, instead of in the final three months of 2026 and the first quarter of 2027.

“We believe inflation will eventually be even higher than the RBI is forecasting,” especially as the risk of a sub-par monsoon gathers pace, she added.

Deutsche Bank AG and Goldman Sachs Group Inc. are also penciling in 50 basis points of rate hikes each in the final months of 2026, taking the RBI’s key rate to 5.75%. Lavanya Venkateswaran, senior economist at Oversea-Chinese Banking Corp. expects cumulative 50 basis points of increases in the current financial year-ending in April 2027, highlighting that “hikes are a matter of time.”

Deutsche Bank’s Kaushik Das expects the RBI to first shift its policy stance to “withdrawal of accommodation” in August before delivering quarter-point hikes each in October and December.

Das sees the repo rate eventually climbing to 6.25% by mid-2027, though he said an August hike cannot be ruled out if inflation data surprise sharply on the upside.

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Others such as Sonal Varma, Nomura Holding Inc.’s chief economist for Asia ex-Japan, still expect the RBI to tread carefully.

“The trigger for the RBI to hike rates is essentially a generalization of price pressures,” Varma, said in an interview with Bloomberg TV’s Haslinda Amin. “Headline inflation is expected to rise, but it will take some time for the RBI to respond.”