DBS warns RBI may hike rates in FY27 if inflation exceeds 5% amid oil, monsoon, and global conflict pressures.
The Reserve Bank of India left its benchmark repo rate unchanged at 5.25% and maintained a neutral stance, aligning with expectations. However, its guidance turned hawkish, citing global tightening, prolonged geopolitical tensions, and domestic inflation risks from higher oil prices and a sub-normal monsoon.
FY26 real GDP growth is projected at 7.7%, but FY27 faces headwinds from supply disruptions and inflationary pressures. DBS forecasts inflation at 4.9% for FY27 but flags upside risks, which could erode the real rate buffer at the current 5.25% repo rate.
Analysts anticipate two 25-basis-point hikes in the second half of FY27 if inflation surpasses the 2-6% target midpoint, particularly if core inflation or demand-side pressures emerge.