Mumbai: The Reserve Bank of India could raise the repo rate twice in 2026 as persistent inflation challenges policymakers despite resilient economic growth, according to Nomura.
Rob Subbaraman, Nomura’s Head of Global Macro Research, expects the RBI to increase rates at its October and December Monetary Policy Committee meetings.
Nomura forecasts India’s gross domestic product to expand 7 per cent in FY27. However, retail inflation could cross 6 per cent soon, strengthening the case for tighter monetary policy.
Higher repo rates increase borrowing costs for households and businesses, potentially making home, vehicle and corporate loans more expensive.
India Investment Outlook Remains Positive
Subbaraman believes India could attract global investment and secure a stronger position in value chains, particularly through high-end manufacturing.
The economy offers opportunities across industries, although India could lag in sectors if artificial intelligence investment remains concentrated in the United States and Northeast Asia.
Foreign currency non-resident bank deposits have recorded strong inflows. These flows could support India’s external position and produce a balance-of-payments surplus.
Federal Reserve Stays Hawkish
Nomura expects the US Federal Reserve to deliver another interest rate hike this year, most likely in December. Further increases remain possible if American inflation stays elevated.
The Federal Reserve recently raised its policy rate by 25 basis points to 3.75–4 per cent. Projections showed 12 of 18 policymakers expecting one more increase this year, while four anticipated two additional hikes.
Global Tensions Remain A Risk
Markets are tracking discussions at the United Nations General Assembly and a possible meeting between US President Donald Trump and Chinese President Xi Jinping.
Investors hope diplomatic progress will ease tensions, reduce US-China trade restrictions and lower energy prices. However, fuel costs remain an economic risk, with US petrol prices approaching $4.50 and diesel prices near record levels of $6.50.
