Repo rate‑hike cycle likely to start early in Dec 26: Report
India’s central bank is likely to begin raising rates in December 2026 rather than previous expectations of April 2027 and deliver a cumulative 75 basis points of hikes to peg the terminal rate at 6 per cent, a report said on Thursday.
New Delhi: India’s central bank is likely to begin raising rates in December 2026 rather than previous expectations of April 2027 and deliver a cumulative 75 basis points of hikes to peg the terminal rate at 6 per cent, a report said on Thursday.
The report from Morgan Stanley forecasted inflation to remain above 5 per cent until June 2027, driven by supply pressures and firming core consumer price index.
It expects core inflation (excluding jewellery) to rise above 4 per cent from November 2026 and remain at or above that level through December 2027 while growth reaches 7 per cent in FY28.
The investment bank said capital‑flow measures announced by RBI in June have mobilised about $36.7 billion in FCNR(B) deposits so far and that it expects incremental inflows of roughly $70–80 billion, with much of the FCNR(B) materialising in September 2026.
ECB-related inflows are expected to be more back-ended given that the scheme remains open until December 2026.
Collectively, these flows are likely to improve both the composition and durability of capital inflows, and result in a BoP surplus of around $35-40 billion in F2027.
RBI’s monetary policy committee held the policy rate at 5.25 per cent and retained a neutral stance at its latest meeting. It marginally revised the FY27 GDP growth forecast to 6.7 per cent and projected headline CPI at 5 per cent and core CPI at 4.3 per cent.
On rationale for an earlier rate hike cycle, the firm said that incoming high-frequency indicators continue to point to resilient domestic activity, suggesting robust underlying demand conditions and a limited impact from supply-side disruptions.
Consumption indicators remain healthy, with vehicle registrations sustaining double-digit growth since October 25 across both passenger vehicles and two wheelers, averaging 26.3 per cent YoY and 24.7 per cent YoY, respectively.
“Going forward, the consumption outlook remains well supported by upcoming festive and seasonal demand, while rising investment activity is likely to support a broadening capex cycle,” the report noted.
