RBI rate hikes ahead? BofA sees 100 bps repo rate increase through H1 2027

The Reserve Bank of India (RBI) could raise interest rates by 100 basis points through the first half of 2027, according to Bank of America (BofA) Securities. The brokerage has also moved up its estimate for the first rate hike, now expecting the hike in October instead of December.BofA expects the RBI to raise the repo rate by 25 basis points at its October 7 monetary policy meeting, and then another 75 basis points of hikes, taking the projected terminal rate to 6.25 per cent.The new forecast is twice the size of BofA's earlier 50 basis point estimate.“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,” BofA said.BofA expects the RBI to raise rates by 50 basis points in the fourth quarter of 2026 and another 50 basis points in the first half of 2027. It also expects the central bank to change its monetary policy stance in December.“The RBI will switch the stance in December to one of calibrated tightening”, the report said.(function(){function e(){window.addEventListener(`message`,function(e){if(e.data[`datawrapper-height`]!==void 0){var t=document.querySelectorAll(`iframe`);for(var n in e.data[`datawrapper-height`])for(var r=0,i;i=t[r];r++)if(i.contentWindow===e.source){var a=e.data[`datawrapper-height`][n]+`px`;i.style.height=a}}})}e()})();So, what has changed in BofA's view? The brokerage said the domestic economy remains resilient, giving the RBI less reason to wait before raising rates. At the same time, inflation risks are becoming broader.Oil prices remained around $100-110 per barrel for most of September, BofA said. It also pointed to rising risks of fuel price increases and food-related supply pressures.Strong economic growth is another factor behind the revised outlook. BofA said the strength of the economy is reducing the need for the RBI to keep monetary conditions accommodative.Non-food credit growth stood at 17.8 per cent year-on-year in September, while investment demand is expected to remain healthy in the second quarter of FY27.Inflation pressures are also spreading, according to the report. BofA said food inflation is becoming more broad-based, while wholesale inflation is increasingly spreading to other sectors. Tradables inflation rose to 5.9 per cent in August 2026.The brokerage has also laid out a scenario in which the RBI could go beyond the 100-basis-point increase it currently expects. If real GDP growth stays around 7 per cent and headline inflation remains close to 5.5 per cent, BofA said the central bank could raise rates by more than 100 basis points.In that case, front-end rates could rise above 6.5 per cent, the brokerage said.But a sharp slowdown in growth could change the rate outlook. BofA said the RBI could deliver fewer hikes or no hike if growth falls below 7 per cent and moves towards 6 per cent on a forward-looking basis.You use AI every day. Now get your AI Quotient. Take the AIQ test.