RBI Rate Hike May Increase Loan Costs From December 2026, Says BofA Securities

The Reserve Bank of India (RBI) is likely to leave policy rates unchanged in the coming months, but borrowers may have to prepare for higher loan costs from the end of the year. According to an ANI report, BofA Securities expects the central bank to raise rates by a total of 50 basis points (bps) from December 2026 as inflation risks become more domestic in nature.

The brokerage has noted that concerns over inflation are no longer centred on global geopolitical developments. Instead, weather conditions within the country are expected to play a bigger role in deciding the direction of prices. It said that below-normal monsoon rainfall and the growing possibility of El Nino have the potential to push up food prices in the second half of FY27, which could influence future RBI policy decisions.

Growth Forecast Raised

BofA has increased its gross domestic product (GDP) growth forecast for FY26 to 6.90 per cent from 6.50 per cent earlier. It expects stronger household spending and higher investment activity to support economic growth.

The report estimated FY27 consumer price index (CPI) inflation at 4.80 per cent. Although this is lower than its earlier projection, it cautioned that weather-related disruptions could lift food inflation later in the financial year and weigh on rural economic activity.

At the same time, the brokerage said that comfortable food grain stocks, lower global commodity prices and improving terms of trade have provided support to the economy and could help limit the impact of higher food prices.

Lower External Risks, Better Credit Outlook

BofA expects India’s current account deficit to narrow to 1.20 per cent of GDP in FY27, helped by softer crude oil prices. It has also projected the fiscal deficit at 4.5 per cent of GDP.

The report added that comfortable liquidity conditions and a stronger balance of payments position have supported credit growth. It expects lending activity to remain healthy if these conditions continue.

BofA said that an improving economic environment has benefited non-banking financial companies (NBFCs), especially those with exposure to retail loans, vehicle finance and lending to micro, small and medium enterprises (MSMEs), as stronger demand has supported borrowing.

However, it cautioned that higher policy rates from December have the potential to raise funding costs for some NBFCs. The brokerage added that careful liability management, disciplined pricing and close monitoring of asset quality will remain important if interest rates begin moving up.