Standard Chartered Global Research anticipates that India's Monetary Policy Committee (MPC) will raise the repo rate by 25 basis points to 5.50% during its 7 October announcement, followed by an additional 25 basis point hike in December. This expectation is based on factors such as rising domestic inflation, robust GDP growth, and hawkish signals from the latest MPC meeting minutes [1].
The research notes that September's Consumer Price Index (CPI) inflation is likely to reach 5.7% year-on-year and is projected to rise above 6% by the December MPC meeting. With the inflation mandate set at a 2-6% band and a medium-term target of 4%, Standard Chartered warns that delaying rate hikes until inflation exceeds 6% could create the perception that the MPC is lagging behind the curve [1].
The report also highlights that a pause in rate hikes in October would be difficult to justify given the hawkish tone of the August MPC minutes and the Reserve Bank of India (RBI) Governor's emphasis on normalizing the repo rate as average inflation is expected to rise towards 5% in FY27, up from 2.5% in FY26 [1].
Looking ahead, Standard Chartered sees a risk of an additional 25-50 basis point increase in the repo rate if inflationary pressures persist beyond current expectations [1].
CONCLUSION
Standard Chartered expects the RBI to front-load rate hikes in response to rising inflation and strong economic growth. The bank warns that further hikes may be necessary if inflation remains elevated, signaling a cautious and proactive monetary policy stance by the MPC.