Bank of America Securities has significantly revised its rate hike forecast, now expecting the Reserve Bank of India to raise interest rates by 100 basis points through the first half of 2027. According to BofA's latest analysis, the RBI is expected to implement three rate hikes totalling 100 basis points, with the first hike coming as early as October 7 instead of December. The brokerage expects the RBI to raise the repo rate by 25 basis points at its October 7 monetary policy meeting, followed by 75 basis points in the fourth quarter of 2026 and another 50 basis points in the first half of 2027. This forecast represents a doubling of BofA's earlier 50 basis point estimate, with the projected terminal rate reaching 6.25%. As per BofA, 'our bigger forecast shift is arguably the quantum of hikes, as we are raising our total quantum of hikes from 50bp earlier, to 100bp now'. Financial markets have increasingly priced in up to 125 basis points of rate hikes over the coming year, with major global economic desks sharply divided on the execution speed and ultimate trajectory of this impending monetary shift. However, Bandhan Life Insurance now projects a more conservative 50-75 basis points increase, driven by domestic inflation, liquidity conditions and financial stability concerns rather than the US Federal Reserve's rate trajectory.
ANZ Research highlighted that despite anticipated rate tightening, the domestic economy is unlikely to suffer a material slowdown. The brokerage noted that top-line growth continues at a strong 7% annual pace, putting the economy on track to double every decade, even as underlying K-shaped labour market trends show concerning unemployment levels among graduates. Yetsenga emphasized that 'the banking system is currently in its best macroeconomic shape in recent memory, supporting a robust credit creation multiplier'. As reported by ANZ, non-food credit growth stood at 17.8% year-on-year in September, while investment demand is expected to remain healthy in the second quarter of FY27. The report highlighted that oil prices staying around $100-110 per barrel for most of September, along with rising risks of fuel price increases and food-related supply pressures, are contributing to inflation concerns. BofA had earlier noted that tradables inflation rose to 5.9% in August 2026, with food inflation becoming more broad-based.
According to BofA Securities, the RBI is expected to deliver three rate hikes totalling 100 basis points, with the first hike coming as early as October 7 instead of December. The brokerage expects the central bank to change its monetary policy stance in December, with BofA stating that 'the RBI will switch the stance in December to one of calibrated tightening'. BofA's approach appears more aggressive than ANZ's forecast, which projects 75 basis points of total increases. As per BofA, 'the domestic economy remains resilient, giving the RBI less reason to wait before raising rates'. The forecast represents a more aggressive stance than ANZ's earlier projection of a total 50-basis-point increase, with BofA's approach suggesting that 'three hikes is enough to probably at least start to cap inflation' without excessive growth impact. Morgan Stanley shares a similar near-term outlook, expecting a 25 bps rate hike in October and a terminal rate of 6.25% by April 2027 to re-anchor real rates and manage external stability amid tighter global financial conditions. However, Bandhan Life notes that any RBI rate action would be guided primarily by local macroeconomic factors, with the Fed potentially delivering one to two additional hikes if inflation reaccelerates or labour markets remain tight.
The rupee is expected to face sustained pressure from a higher oil import bill, current account dynamics and dollar strength globally, with capital inflows providing a buffer rather than a structural remedy. The medium-term currency outlook points to gradual, managed depreciation. On equities, Bandhan Life flagged that elevated global uncertainty and firm valuations would make the Indian market increasingly stock-specific, with earnings visibility becoming a key differentiator for investors. The IT sector faces a difficult near-term earnings outlook as rising AI spending diverts corporate budgets from traditional technology services, with meaningful upgrades to IT earnings estimates unlikely before the second half of FY27. However, Healthcare retains structural appeal as India's significant shortage of hospital beds, ongoing capacity expansion by organised players and sustained private equity interest continue to support the sector. Strong Q1FY27 earnings could offer some near-term support to equities, though macroeconomic risks from crude prices, US bond yields and geopolitical tensions remain key variables to watch.
Conversely, Nomura pushes back against aggressive market pricing, arguing that this tightening cycle is fundamentally different from past regimes. Nomura notes that India's underlying core inflation trend has structurally moderated from past peaks down to roughly 3%, and their proprietary inflation generalization index confirms a lack of widespread second-round wage-price pressures. Because leading indicators point to a natural cooling in domestic growth momentum, Nomura projects a much shallower path: a modest 50 bps recalibration via consecutive 25 bps hikes in October and December to a terminal rate of 5.75%, followed by a swift easing of tightening pressures by early 2027. This contrarian view suggests that the current inflation pressures may not warrant the aggressive tightening cycle anticipated by other major brokerages, with Nomura's analysis pointing to structural moderation in core inflation trends.
