Indian Rupee: RBI tightening path seen shallow – Standard Chartered

Standard Chartered strategists Anubhuti Sahay and Saurav Anand expect the Reserve Bank of India (RBI) to deliver a total of 50bps of repo rate hikes in FY27, split between October and December 2026, citing resilient activity and hawkish August Monetary Policy Committee (MPC) minutes. They highlight upside risks if inflation surprises higher, but still see a shallow hiking cycle, framing the moves as policy normalization from current levels.

Repo hikes seen as normalization

"We now forecast 50bps of repo rate hikes (previously: on hold), split equally between October and December 2026, against a backdrop of resilient economic activity and hawkish August Monetary Policy Committee (MPC) minutes."

"With most members explicitly open to a scenario of higher rates if inflationary pressures become generalised, an earlier hike now appears probable."

"Most notably, the RBI governor stated that as inflation normalises from 2% last year towards 5% in FY27, a recalibration of the repo rate from 5.25% may be needed."

"We see two risks to our call for 50bps of repo rate hikes. First, if inflationary pressures are stronger than expected – for example owing to continued geopolitical tensions – we could see one or two additional hikes. Currently, our FY27 CPI forecast is at 4.9%. Second, the MPC could begin hiking in December rather than October. However, waiting until December could make its reaction function appear delayed, in our view, as the inflation print immediately after the October MPC meeting is likely to rise above 5%. "

"Overall, while we expect rate increases and see upside risk to the number of hikes if inflation is higher, we expect the current hiking cycle to remain shallow."