Nomura Sees RBI Repo Rate Rising To 5.75 Per Cent With Two 25 Bps Hikes

The Reserve Bank of India (RBI) may increase the repo rate by 25 basis points in October and another 25 basis points in December, taking the rate to 5.75 per cent, according to Nomura.

The brokerage expects these rate hikes to help keep inflation expectations under control. It has given an 80 per cent probability to a scenario where the RBI raises rates by 25-50 basis points in total.

October MPC Meeting In Focus

The RBI's repo rate currently stands at 5.25 per cent. At its latest Monetary Policy Committee (MPC) meeting in August 2026, the central bank kept the repo rate unchanged at 5.25 per cent and retained its policy stance.

The August meeting was the fourth consecutive MPC review without a change in the repo rate. The RBI last changed the repo rate in December 2025, when it cut the rate by 25 basis points to 5.25 per cent.

Nomura expects the next rate change at the October MPC meeting, followed by another 25 basis point increase in December. This would take the repo rate to 5.75 per cent by the end of 2026.

The brokerage expects a much smaller increase than what financial markets are currently pricing in. Markets are factoring in close to 125 basis points of rate hikes over the next year, while Nomura expects only 25-50 basis points of increases in this cycle.

Inflation May Rise Above 6 Per Cent

Nomura expects consumer price index (CPI) inflation to rise from 4.8 per cent in August to 6.3 per cent in the fourth quarter. It expects inflation to come down to around 5.3 per cent in the first half of 2027 and below 4 per cent in the second half.

For FY27, Nomura expects CPI inflation to average 5.2 per cent. Its forecast for FY28 is 4 per cent.

Food inflation is the biggest risk to the near-term inflation outlook, according to the brokerage. Nomura's inflation generalisation index rose to 92.6 in August from 84.8 in January. The index was still below its average level of 100, indicating that inflation pressures had not spread widely across the economy.

Nomura's India Composite Leading Index also fell to 99.8 in the fourth quarter of 2026 from 100.5 in the first half of the year. The brokerage expects this to point to slower-than-usual economic growth ahead.

Nomura expects the RBI to make a limited increase in rates as inflation rises, while weaker growth could limit the need for further rate hikes.