MediumIV Macro Policy & Sovereign Debt27 September 2026, Sunday
Economists expect the Reserve Bank of India to raise rates in October
Economists at HSBC and Motilal Oswal say the Reserve Bank of India (RBI) may raise its 5.25% policy rate by 25 basis points at its October meeting. Brent has climbed to 102 dollars, August CPI inflation rose to 4.82% and the rupee has been trading in the middle of the 95 band against the dollar.
According to the Deccan Chronicle on 27 September, retail inflation rose from 4.45% in July to 4.82%, and core inflation from 4.16% to 4.44%; food inflation stood at 5.66%. The RBI's oil price assumption for fiscal year 2026–27 is 90–95 dollars, yet Brent has risen to 102 dollars and the 10-year government bond yield has moved above 7%. Radhika Piplani of Motilal Oswal spoke of possible cumulative hikes of 75–100 basis points. Apoorva Javadekar of Shriram Finance, by contrast, argued against using rates to defend the rupee.
The Hans India reported on 27 September that HSBC's Pranjul Bhandari expects two 25-basis-point hikes, in October and December, taking the rate to 5.75%. According to Radhika Rao of DBS, the banking system's liquidity surplus has fallen from a peak of 10–11 lakh crore rupees to below 5 lakh crore rupees; one lakh crore equals 1 trillion rupees. The Deccan Chronicle says the meeting will be held on 5–7 October. Expectations that the decision will be announced on 1 October are also circulating, and the official date could not be verified from the RBI calendar.
Talay assessment
Bottom line
Oil running 7 dollars above the RBI's assumption, core inflation rising to 4.44% and liquidity halving all suggest the rate path is about to turn towards tightening. A 25-basis-point hike in October is the most likely course. Some economists, however, object to using interest rates to defend the rupee.
Likely effects
- Indian debt marketNegativeWeeks
A 10-year yield above 7% and expectations of a 5.75% policy rate are keeping near-term yields elevated.
- RupeePositiveWeeks
A rate hike could support the rupee, now in the middle of the 95 band, and reduce the RBI's need to spend reserves.
- GrowthNegative1–6 months
In an economy that grew 7.8% in the first quarter, cumulative tightening of 75–100 basis points could slow credit growth.
Possibilities, ranked
- 125-basis-point hike in October60%
The RBI raises the rate to 5.50% and keeps the door open to a further step in December if oil stays high.
Watch: Text of the RBI Monetary Policy Committee decision
- 2Hold and tighten via liquidity35%
The RBI leaves the rate unchanged, keeps tightening through liquidity absorption and currency swaps, and defers a hike to December.
Watch: Whether Brent stays above 102 dollars, and the rupee exchange rate
- 350-basis-point hike5%
The rupee breaches the 96 threshold and the RBI opts for a larger one-off hike.
Watch: The dollar/rupee rate holding above 96
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- RBI policy rate▼ 5.25%
- August CPI▼ 4.82%
- HSBC year-end rate forecast▼ 5.75%