RBI Rate Hike Ahead? 80% Economists Expect 25-Bps Increase in October MPC

The Reserve Bank of India (RBI) may raise its benchmark repo rate by 25 basis points to 5.50% at the October Monetary Policy Committee (MPC) meeting, with rising crude oil prices, food-inflation risks and stronger-than-expected economic growth pushing policymakers towards tighter monetary conditions.

According to a poll of economists conducted by Financial Express, 80% of respondents expect a 25-basis-point rate hike when the six-member MPC meets from October 5 to October 7, with the policy announcement scheduled for October 7.

A quarter-percentage-point increase would take the repo rate from 5.25% to 5.50%.

However, economists remain divided over how long any tightening cycle could last and whether the RBI will retain its current neutral policy stance.

Why economists expect an RBI rate hike

Inflation has emerged as the biggest argument for a policy adjustment.

Retail inflation rose to 4.8% in August, from 4.45% in July, according to the figures cited in the supplied report. Economists expect price pressures to increase further in the coming months, particularly because of elevated crude oil prices and food-related risks.

The RBI’s earlier projection for third-quarter inflation was 5.9%, but some economists believe that estimate could be exceeded.

Madhavankutty G, chief economist at Canara Bank, said the inflation projection could be surpassed in the current environment, strengthening the case for a 25-basis-point increase.

He expects the RBI to raise rates while continuing with a neutral stance.

Strong GDP growth gives RBI more room to act

The growth backdrop is another factor shaping expectations.

India’s GDP expanded by 7.8% in the April-June quarter, according to the figures cited in the report, exceeding the RBI’s previous projection.

Stronger economic growth gives the central bank greater room to focus on inflation risks without necessarily putting the broader economy under significant pressure.

Several economists therefore expect the RBI to revise its growth outlook upward in the October policy review.

Indranil Pan, chief economist at YES Bank, also expects a 25-basis-point increase and reportedly puts the probability of a delay at only 10–15%.

However, Pan also highlighted a significant monetary-policy complication: the banking system continues to have surplus liquidity, which could limit how effectively a rate increase is transmitted into borrowing costs and broader financial conditions.

What could happen to the RBI’s policy stance?

The rate decision is not the only issue investors will be watching.

Around 60% of economists surveyed expect the RBI to retain its neutral stance, while others see possibilities ranging from a calibrated tightening approach to other changes in policy guidance.

The distinction matters because a rate hike accompanied by a neutral stance could be interpreted as a limited, pre-emptive response to inflation rather than the beginning of a prolonged tightening cycle.

Barclays, Nomura and Goldman Sachs see more hikes

Some major global research houses expect the October move to be followed by another increase in December.

Barclays, Nomura and Goldman Sachs each expect the MPC to deliver 25-basis-point hikes in both October and December, according to the supplied report.

Nomura views the expected moves as a pre-emptive recalibration rather than the beginning of an aggressive tightening campaign.

It expects inflation to reach about 6.3% in the October-December quarter before moderating and sees the repo rate eventually peaking around 5.75%. It also expects the RBI to retain its neutral stance.

Barclays similarly expects a terminal repo rate of 5.75%, although it places greater emphasis on the RBI’s efforts to absorb excess liquidity and improve monetary-policy transmission.

The brokerage expects the central bank could use instruments including variable-rate reverse repo operations, open market operation sales and swaps.

Goldman Sachs sees a longer tightening cycle

Goldman Sachs has a more aggressive outlook.

Alongside its expectation of 25-basis-point increases in October and December, the firm expects another 50 basis points of tightening during the first half of 2027.

That would bring cumulative rate increases during the projected cycle to 100 basis points.

Goldman Sachs cited stronger economic growth, broader inflationary pressures and tighter global monetary conditions as reasons for bringing forward its rate-hike expectations.

Such a scenario would represent a much longer tightening cycle than the more limited recalibration projected by Nomura.

Not all economists expect a rate increase

There is no consensus that the RBI will tighten policy this week.

Madan Sabnavis, chief economist at Bank of Baroda, expects the MPC to leave both the repo rate and its policy stance unchanged.

Sabnavis has argued that raising rates while headline inflation remains around 4.8% could be premature, particularly with India’s festival season approaching.

He also pointed to recent FCNR measures and surplus liquidity as factors that could weaken the transmission of a rate hike through the financial system.

His view highlights the central dilemma facing the MPC: inflation is expected to rise, but some policymakers may prefer to wait for clearer evidence that those pressures are persistent.

HDFC Bank also expects rates to remain unchanged

HDFC Bank likewise expects the RBI to keep the repo rate unchanged in October, although it sees a possibility that the policy stance could move closer to tightening.

The bank expects the RBI to raise its FY27 GDP growth forecast to 7% from 6.7%, while leaving its inflation projection unchanged.

That outlook reflects the possibility that policymakers could acknowledge stronger growth and emerging inflation risks without immediately changing the policy rate.

Inflation, growth and liquidity will all matter

The October policy meeting is taking place against a complicated backdrop.

Inflation has moved higher, crude oil prices remain a concern and food prices could face additional pressure from weather conditions, including El Niño-related risks mentioned in the supplied material.

At the same time, India’s economy is growing faster than the RBI had previously anticipated.

The liquidity situation adds another layer of uncertainty. Even if the policy rate is increased, a large liquidity surplus could reduce the speed and scale at which the change is transmitted to bank lending rates and financial conditions.

That is why economists are watching not just the rate decision but also the RBI’s liquidity-management strategy and policy language.

RBI growth and inflation forecasts in focus

The central bank’s revised economic projections will be another major feature of the October announcement.

Pan expects the RBI to increase its growth forecast by around 20–30 basis points to approximately 7%.

SBI Research expects a larger upward revision of about 30 basis points in FY27 GDP growth, along with a 20-basis-point increase in its inflation forecast, according to the supplied report.

The revisions could provide an important signal about how the RBI views the durability of India’s growth momentum and the persistence of inflation pressures.

What investors should watch on October 7

Markets will be looking beyond the headline repo-rate decision.

A 25-basis-point increase to 5.50% would be significant, but the accompanying stance, guidance on future moves, inflation projections, growth forecasts and liquidity commentary could have a larger impact on financial markets.

If the RBI hikes rates while retaining a neutral stance, investors may interpret the move as a targeted response to rising inflation rather than the start of a prolonged tightening cycle.

A more hawkish communication, however, could strengthen expectations for additional increases.

With economists divided on the extent of future tightening, the October 7 policy announcement is set to provide an important test of how the RBI balances rising inflation risks against India’s strong economic growth.