Nomura predicts the Reserve Bank of India will limit repo rate hikes to 50 basis points, targeting a 5.75% rate. This forecast is significantly lower than the 125 basis points currently expected by the broader market. Investors are monitoring the Monetary Policy Committee meeting taking place from October 5–7, 2026, for the official decision.
The Reserve Bank of India (RBI) is expected to follow a more measured approach to interest rate hikes for the remainder of the year, according to a latest report by Nomura. The brokerage firm projects a total increase of 50 basis points in the repo rate—the interest rate at which the central bank lends money to commercial banks—bringing the terminal rate to 5.75%. This outlook is notably more conservative than the 125 basis points of tightening currently priced in by market participants.
The current repo rate stands at 5.25%. With India’s retail inflation, as measured by the Consumer Price Index (CPI), recorded at 4.82% in August 2026, the central bank faces the dual challenge of managing price levels while supporting economic growth. Nomura analysts suggest that while inflation remains a factor, it has not yet become widespread enough to justify a more aggressive, restrictive policy that could hurt consumption and rural demand.
The Disconnect Between Forecasts and Market Pricing
A key point for investors to track is the significant gap between Nomura’s forecast and the wider market expectations. While the market has factored in 125 basis points of hikes, Nomura argues that slowing economic output and potential challenges from inconsistent monsoon patterns will likely influence the Monetary Policy Committee (MPC) to prioritize growth preservation over further aggressive rate adjustments.
Currency and Global Risks
Despite the case for a more moderate policy stance, external risks remain a challenge for the RBI. The Indian rupee has faced depreciation pressure, driven by factors such as global bond market volatility, rising yields in the United States, and elevated crude oil prices. Nomura’s foreign exchange strategy team has projected that the rupee could reach approximately 94 against the US dollar by the first quarter of 2027. These external pressures complicate the central bank's task, as the need to defend the currency often requires interventions that effectively reduce the money supply in the banking system.
The Monetary Policy Committee is meeting from October 5–7, 2026. This gathering is the immediate next update for investors, as the committee’s decision and accompanying commentary will clarify the central bank’s priority between managing inflation, stabilizing the currency, and supporting economic activity.