RBI Rate Hike Forecast: BofA Sees 100 bps Increase Through H1 2027
Bank of America Securities has sharply raised its forecast for Reserve Bank of India (RBI) rate hikes, now expecting a cumulative increase of 100 basis points through the first half of 2027. The brokerage has also moved forward its projection for the first rate increase to October from December, citing strong domestic economic growth and wider inflationary pressures.
In its latest India Viewpoint report, BofA Securities expects the RBI to increase the repo rate by 25 basis points at its October 7 monetary policy meeting. It has projected a further 75 basis points of hikes after that, which would take the terminal repo rate to 6.25 per cent.
The brokerage had previously estimated a total increase of 50 basis points. It said the more significant change in its outlook is the expected size of the tightening cycle, with its forecast now doubled to 100 basis points.
BofA expects 50 basis points of rate increases during the fourth quarter of 2026, followed by another 50 basis points in the first half of 2027. It also expects the RBI to change its monetary policy stance in December to what it described as “calibrated tightening.”
Growth and Inflation Risks Influence OutlookAccording to BofA, the RBI has less reason to delay rate increases as domestic economic activity remains resilient. At the same time, inflation risks are becoming broader.
The brokerage highlighted crude oil prices of around USD 100-110 per barrel through most of September, along with rising risks of higher fuel prices and supply-related pressures on food prices.
BofA also pointed to strong credit and investment activity. Non-food credit growth reached 17.8 per cent year-on-year in September, while investment demand is expected to remain healthy during the second quarter of FY27.
The report said inflation pressures are also becoming more widespread.
BofA said the RBI could potentially raise rates by more than 100 basis points if real GDP growth remains around 7 per cent and headline inflation stays close to 5.5 per cent. Under such circumstances, front-end interest rates could move above 6.5 per cent, the brokerage said.
On the other hand, a significant weakening in economic growth could result in fewer rate increases or no hike at all. BofA said this scenario could emerge if forward-looking growth falls below 7 per cent and moves towards 6 per cent.
DisclaimerThis article is based on information from a syndicated report and is intended for informational purposes only. The views and forecasts mentioned belong to Bank of America Securities and should not be treated as guaranteed outcomes.