Japanese brokerage Nomura expects the RBI to hike the repo rate by 0.25% in both October and December 2026, reaching 5.75%. This move aims to control rising food and energy inflation. Investors may watch for the potential impact on loan EMIs, corporate borrowing costs, and consumer spending as the central bank balances inflation control with economic growth.
Japanese brokerage Nomura has projected that the Reserve Bank of India (RBI) is likely to increase the repo rate by 0.25% in both its upcoming October and December policy meetings. This action would bring the terminal repo rate to 5.75%. The central bank has been navigating a difficult environment where it must stabilize prices without significantly hurting economic expansion.
The primary driver behind this prediction is the rising cost of living, specifically food and energy inflation. According to the brokerage, consumer price inflation could climb from 4.8% in August to 6.3% by the final quarter of the year. Food prices have remained volatile recently, largely due to deficient monsoon patterns which have impacted the kharif crop cycle and tightened supply in several agricultural markets. While the government has intervened with measures such as stock limits on sugar and subsidized onion sales, these are viewed as temporary fixes against broader inflationary pressures.
For investors, these rate hikes carry direct implications. When the RBI raises the repo rate, commercial banks typically increase their lending rates. This means that both individuals and businesses may face higher interest costs on loans. For companies, higher borrowing costs can translate into increased expenses, potentially putting pressure on profit margins. This is particularly relevant for sectors that rely heavily on debt or sensitive consumer demand, as higher costs might lead to reduced spending on discretionary goods.
Despite these challenges, the Indian economy has shown resilience. Recent data indicated a 7.8% year-on-year GDP growth, supported by strong credit growth of 19.1%. However, the combination of higher interest rates and weak crop outputs may create headwinds for rural consumption in the coming months. The external sector is also facing pressure, with the nation’s software-services surplus retreating from its 2025 peak, which complicates the financing of the current account amid volatile energy prices and international capital flows.
The path for inflation and interest rates remains dependent on incoming data. Investors may track the upcoming RBI policy announcements and monthly inflation reports to gauge the central bank’s stance. The key monitorable for the markets will be whether the RBI maintains its focus on inflation control or adjusts its trajectory if economic data shows signs of a sharp slowdown in growth or consumption.