RBI Rate Hike Outlook: Nomura Sees 5.75% Terminal Repo Rate After October, December Moves

The Reserve Bank of India (RBI) could raise its policy repo rate by 25 basis points at each of its October and December meetings, taking the terminal rate to 5.75%, according to Japanese brokerage Nomura.

A terminal rate refers to the level at which a central bank is expected to stop raising or cutting interest rates during a particular monetary-policy cycle.

Nomura’s forecast comes with some uncertainty. The brokerage said there is a possibility of only one rate increase, while the likelihood of further hikes could decline from February 2027 as consumer spending potentially weakens and the inflation outlook becomes more favourable.

“The RBI hikes by 25 basis points in each of October and December to a terminal rate of 5.75 per cent, though there is some risk of a one-and-done hike,” Nomura said in a report.

The forecast represents Nomura’s assessment and is not an announcement or guidance from the RBI.

Why Nomura expects two more rate hikes

Nomura expects inflationary pressures from food and energy prices to remain relevant over the coming months.

The brokerage said these cyclical pressures could push inflation higher initially, although weaker demand resulting from those pressures could eventually help bring inflation back toward the RBI’s target.

Nomura expects consumer price inflation to rise from 4.8% year-on-year in August to around 6.3% in the fourth quarter, before easing to approximately 5.3% in the first half of 2027.

The brokerage expects inflation to fall below 4% in the second half of 2027.

For the full financial years, Nomura forecasts average CPI inflation at 5.2% in FY27 and 4% in FY28. Its forecast for core CPI inflation stands at 4.3% in FY27 and 4% in FY28.

Food inflation remains a key risk

Food prices are one of the biggest uncertainties in Nomura’s near-term inflation outlook.

The brokerage pointed to deficient monsoon conditions and weaker kharif sowing as factors that could affect agricultural output and food prices.

Nomura also noted government measures involving commodities such as sugar and onions that could help moderate some price pressures.

However, the brokerage said lower crop output could continue to create upside risks for food inflation.

Higher food prices are particularly significant for household spending because they can reduce the amount of income available for discretionary consumption.

Growth remains strong, but risks are emerging

India’s economic growth has remained relatively robust, according to the data cited by Nomura.

The brokerage noted that real GDP growth was 7.8% year-on-year in the second quarter, while credit growth stood at 19.1% year-on-year in August.

However, Nomura also identified several risks that could weigh on economic activity.

Deficient rainfall could result in lower kharif and rabi crop output, potentially affecting rural consumption.

Higher food inflation could also reduce real disposable incomes and lead households to cut back on discretionary spending.

This could create a more challenging growth environment even if headline GDP growth remains relatively strong.

AI developments pose risks for India’s services exports

Nomura also highlighted developments in artificial intelligence as a potential risk for India’s services sector.

The brokerage said India’s software-services surplus stood at $51.4 billion in the second quarter of 2026, compared with a peak of $53 billion in the fourth quarter of 2025.

According to Nomura, the surplus declined 2.9% quarter-on-quarter in the first quarter and another 0.1% in the second quarter.

The development comes amid broader debate over how AI adoption could affect technology and software-services demand, employment structures and India’s export earnings.

The extent and timing of any impact from AI remain uncertain, but Nomura has included the sector’s changing outlook among the risks to India’s external position and growth.

Current account financing could become more difficult

Nomura also raised concerns about India’s external financing requirements.

The brokerage pointed to an unfavourable portfolio-flow environment, the passing of FCNR(B) inflows and elevated energy prices.

FCNR(B) deposits are foreign-currency deposits accepted by Indian banks from non-resident Indians. Changes in these inflows can influence the availability of foreign-currency funding.

At the same time, higher energy prices can increase India’s import bill because the country remains heavily dependent on imported crude oil.

Nomura therefore said financing a widening current account deficit could become more challenging under the combination of weaker portfolio flows and higher energy costs.

What does Nomura’s 5.75% forecast mean?

Nomura’s projected 5.75% terminal repo rate assumes two 25-basis-point increases, one in October and another in December.

However, the brokerage has also acknowledged the possibility of only one hike.

Its expectation of fewer rate increases from February 2027 is linked to the possibility of weaker consumption and a softer inflation outlook.

For borrowers, higher policy rates can affect lending rates depending on how banks and financial institutions transmit changes in the RBI’s policy rate.

For savers, changes in the interest-rate cycle can influence the returns available across deposits and other fixed-income instruments.

The actual path of monetary policy, however, will depend on incoming inflation, growth, liquidity, external-sector and financial-market data as well as the RBI’s assessment at each policy meeting.

RBI rate outlook remains data-dependent

Nomura’s forecast points to a potentially more restrictive monetary-policy path over the next two meetings, but the projected 5.75% terminal rate should not be treated as a confirmed outcome.

The key variables to watch include food inflation, energy prices, monsoon and crop conditions, household consumption, credit growth and external capital flows.

Nomura expects inflation to rise significantly in the near term before easing later, while it also sees emerging downside risks to growth.

The RBI’s actual policy decisions will ultimately depend on its assessment of these developments at the time of each monetary-policy review.