RBI may raise repo rate by 100 bps through H1 2027: BofA Securities
BofA Securities predicts the RBI could hike the repo rate by 100 basis points through H1 2027 due to resilient growth and inflation risks.
In a significant shift in market expectations, Bank of America (BofA) Securities has projected that the Reserve Bank of India (RBI) may raise the repo rate by a total of 100 basis points through the first half of 2027. This revised forecast comes as the brokerage brings forward its timeline for the initial rate hike, now anticipating action as early as October.
A Major Shift in Interest Rate Projections
BofA Securities has substantially increased its outlook for monetary tightening. While the brokerage had previously estimated a total increase of 50 basis points, it has now doubled that figure to 100 basis points. According to their latest India Viewpoint report, the central bank is expected to implement a 25-basis-point hike during the upcoming monetary policy meeting on October 7.
Following this initial move, the brokerage anticipates an additional 75 basis points of hikes, which would bring the projected terminal rate to 6.25 per cent. The timeline for these increases is broken down as follows:
- Fourth Quarter of 2026: Expected 50 basis points of rate hikes.
- First Half of 2027: Expected another 50 basis points of rate hikes.
Why the RBI Might Act Sooner
The brokerage suggests that the RBI has diminishing reasons to delay its intervention. The primary drivers behind this aggressive stance include resilient domestic economic growth and widening inflation risks. BofA noted that the need to maintain accommodative monetary conditions is reducing as the economy shows strength.
Key economic indicators supporting this view include:
- Credit Growth: Non-food credit growth was recorded at 17.8 per cent year-on-year in September.
- Investment Demand: Demand for investment is expected to remain robust through the second quarter of FY27.
- Monetary Stance: The report predicts the RBI will pivot its stance in December to one of "calibrated tightening."
Rising Inflationary Pressures
Inflationary concerns are becoming increasingly broad-based, moving beyond just food prices. BofA highlighted that wholesale inflation is spreading to various sectors, noting that tradables inflation reached 5.9 per cent in August 2026.
External factors are also contributing to the pressure. The report pointed to oil prices hovering between USD 100-110 per barrel throughout September, alongside rising risks of increased fuel prices and supply-side pressures affecting food commodities.
The Growth vs. Inflation Equation
The magnitude of future rate hikes remains closely tied to India's macroeconomic performance. BofA Securities indicated that the RBI could potentially hike rates by even more than 100 basis points under specific conditions:
The Upside Scenario: If real GDP growth remains steady at approximately 7 per cent and headline inflation stays near 5.5 per cent, front-end rates could climb above 6.5 per cent.
The Downside Scenario: Conversely, if there is a significant slowdown in economic activity—specifically if growth falls from the 7 per cent mark toward 6 per cent on a forward-looking basis—the central bank might implement fewer hikes or even pause altogether.