Bank of America Predicts RBI Repo Rate Increase of 100 Basis Points by Mid-2027
The Reserve Bank of India (RBI) is projected to increase interest rates by 100 basis points through the first half of 2027, according to a report from Bank of America (BofA) Securities. The brokerage has revised its timeline for the first rate hike, now anticipating it will occur in October rather than December. BofA expects a 25 basis point increase at the RBI’s monetary policy meeting on October 7, followed by an additional 75 basis points of hikes, bringing the terminal rate to 6.25 percent.
BofA’s updated forecast reflects a significant shift from its previous estimate of a 50 basis point increase. The brokerage stated, “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.” The report also indicates that BofA anticipates a 50 basis point hike in the fourth quarter of 2026 and another 50 basis points in the first half of 2027. Additionally, the central bank is expected to change its monetary policy stance to one of calibrated tightening in December.
Several factors have influenced BofA’s revised outlook. The brokerage noted that the domestic economy remains resilient, reducing the RBI’s incentive to delay rate increases. Inflation risks are also broadening, with oil prices hovering around USD 100-110 per barrel for much of September. BofA pointed to rising risks of fuel price increases and food-related supply pressures as contributing factors. Strong economic growth further supports the need for the RBI to adjust monetary conditions, with non-food credit growth at 17.8 percent year-on-year in September and healthy investment demand expected in the second quarter of FY27.
BofA also highlighted that inflation pressures are becoming more widespread. Food inflation is increasingly broad-based, and wholesale inflation is affecting various sectors. Tradables inflation rose to 5.9 percent in August 2026. The brokerage outlined a scenario where the RBI could exceed the anticipated 100 basis point increase if real GDP growth remains around 7 percent and headline inflation stays close to 5.5 percent. In such a case, front-end rates could rise above 6.5 percent. Conversely, a significant slowdown in growth could lead to fewer hikes or no increase if growth falls below 7 percent.
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