RBI May Limit Rate Hikes To 25–50 Basis Points, Report Sees Inflation Cooling In 2027

New Delhi: The Reserve Bank of India (RBI) may raise interest rates by only 25–50 basis points in the current cycle, according to Nomura. The brokerage said markets were expecting a much steeper rise than the inflation outlook appeared to justify.

Nomura assigned an 80 per cent probability to a limited adjustment in the repo rate, rather than a broader tightening cycle of more than 75 basis points. It said markets were pricing in nearly 125 basis points of hikes over the next year.

Its central forecast is for the RBI to increase the policy rate by 25 basis points in October and another 25 basis points in December. That would take the repo rate to 5.75 per cent. Nomura also sees a possibility that the central bank may raise rates just once.

These are the brokerage’s projections; the RBI has made no commitment to the suggested path.

Why Nomura Expects A Short Cycle

Nomura said underlying price pressures have eased, with core inflation falling from around 5 per cent to about 3 per cent. Core inflation excludes volatile food and fuel prices and can help show whether price rises are spreading across the economy.

The brokerage said the current easing in inflation differs from 2016–17 because lower core inflation is playing a significant role. In its assessment, there are limited signs that price pressures are becoming widespread.

A modest early rate hike could still help keep inflation expectations under control, the report said.

Inflation Outlook For 2027

Food prices remain the principal near-term risk, although government measures to improve supply could contain some increases. Nomura also expects unfavourable comparison effects to add about 0.8 percentage points to headline inflation in October and November.

The brokerage forecasts consumer price inflation of around 5.3 per cent in the first half of 2027, before it falls below 4 per cent in the second half. It projects average inflation of 5.2 per cent in FY27 and 4 per cent in FY28.

Nomura expects the case for further RBI rate hikes to weaken from February 2027 as consumption slows and the inflation outlook improves.