Bank of America Securities forecasts a total 100 basis point repo rate hike by the RBI through early 2027. Rising inflation and strong credit demand are driving this expected shift, with a potential 25 basis point increase as early as October. This change could lead to higher borrowing costs for both consumers and corporations.
Bank of America (BofA) Securities has projected that the Reserve Bank of India (RBI) could raise the repo rate by a total of 100 basis points by the first half of 2027. This forecast marks a significant shift in expectations, moving from a previous estimate of 50 basis points. The brokerage expects the central bank may begin this cycle of rate hikes as early as the upcoming October 7 meeting.
Inflation and Growth Drivers
The main driver for this prediction is the combination of persistent inflation and strong economic activity. BofA notes that domestic growth has remained resilient, supported by a 17.8 percent year-on-year growth in non-food credit as of September. While this indicates a healthy economy, it also raises concerns about broadening price pressures beyond just food items, particularly with oil prices lingering near $110 per barrel. The brokerage anticipates that the central bank may shift its formal policy stance to 'calibrated tightening' by December.
Impact on Borrowing and Markets
For investors and consumers, a hike in the repo rate typically leads to higher borrowing costs. If implemented, this shift would mean that loans linked to the repo rate—such as home, auto, and corporate loans—may become more expensive. For companies, higher interest rates often mean higher finance costs, which can impact profitability, especially for businesses with high debt levels. The brokerage suggests a terminal repo rate of 6.25 percent under this forecast.
However, this path is not fixed. The final decision will depend heavily on future growth and inflation data. The BofA report highlights that the policy trajectory remains flexible. If the Indian economy experiences a slowdown, with GDP growth potentially cooling toward 6 percent, the central bank might pause or halt its tightening cycle. Conversely, if growth remains at 7 percent, the terminal rate could be higher than currently projected. Investors will likely monitor the upcoming October policy announcement for any signals from the RBI regarding its stance on inflation and future rate adjustments. The central bank's commentary on managing the balance between supporting growth and controlling price increases will be a key factor for market sentiment in the coming months.