Following the Reserve Bank of India's decision to raise the repo rate to 5.50% on October 7, 2026, brokerage firm Nomura forecasts only one more increase to 5.75% in December. This view counters market fears of a more aggressive, long-term hiking cycle, providing a clearer outlook for borrowing costs.
The Reserve Bank of India (RBI) increased the repo rate by 25 basis points to 5.50% on October 7, 2026, shifting its stance to calibrated tightening. Following this development, global brokerage Nomura has issued a forecast suggesting that the central bank will likely deliver only one more 25-basis-point hike in December, bringing the terminal repo rate to 5.75%.
This projection contrasts with prevailing market sentiment, which had been pricing in a much more aggressive path of interest rate hikes, totaling up to 125 basis points. Nomura suggests that the current policy actions are a recalibration of interest rates to a neutral level rather than the start of a prolonged and aggressive tightening cycle. This distinction is important for investors, as a shorter cycle implies that the pressure on interest rates may be less severe than what some investors currently fear.
For borrowers and businesses, the trajectory of interest rates directly impacts the cost of capital. A higher repo rate typically leads to higher interest rates on loans, including home, auto, and personal loans, which can increase monthly EMIs for individual borrowers. For companies, particularly those in credit-sensitive sectors like Non-Banking Financial Companies (NBFCs) and MSMEs, higher rates can increase borrowing costs and potentially tighten profit margins if they cannot pass these costs on to customers.
Despite the RBI raising its GDP growth forecast for the 2027 fiscal year to 7.1%, there are underlying economic risks that investors are monitoring. Concerns remain regarding stagnant agricultural output, weakened rural demand due to erratic monsoon patterns, and the potential impact of persistent inflation on consumer spending. While food and energy prices have created near-term inflation pressures, Nomura notes that there is currently limited evidence of widespread inflation across the broader economy, which supports its view for a limited rate hike cycle.
The most important monitorable for investors will be the upcoming data on inflation and the official commentary from the Monetary Policy Committee (MPC) leading up to the December meeting. Any deviation in inflation trends from the central bank's projections could alter the policy path. Investors will also look for how banks and financial institutions adjust their lending and deposit rates in response to the recent and expected future policy changes.