Goldman Sachs sees a change in the Reserve Bank of India's tone towards tighter policy, while Bank of America remains more cautious after the central bank left rates unchanged this month. Both brokerages expect 50 bps of rate hikes in FY27, but differ in their reading of the RBI's latest communication and how soon those hikes could come.
Goldman Sachs expects the RBI to raise rates by 25 basis points each in December 2026 and February 2027. BofA, meanwhile, said the latest decision was a "dovish hold" and expects policymakers to remain data dependent before acting.
The difference in views comes as inflation moves higher. The RBI has projected CPI inflation at 5% for FY27, with inflation expected to reach 5.9% in Q3 before easing to 5.5% in Q4.
Food And Fuel Remain The Key Risk
Goldman Sachs said the RBI's minutes pointed to a "hawkish shift" from Governor Sanjay Malhotra's statement at the August policy meeting.
The brokerage said MPC members recognised that higher food and fuel inflation could lead to second-round effects. But they also made clear that a wider and more persistent increase in prices would be needed before the RBI takes policy action.
Goldman Sachs also pointed to signs of firmer inflation in core goods, although it said the pass-through to core services was still limited.
That reading is consistent with the concerns raised by some MPC members. Saugata Bhattacharya said higher fuel prices could feed into consumer prices through higher input costs and push inflation risks to the upside. He nevertheless argued that the RBI should wait for evidence of stronger aggregate demand and broader price pressures.
Indranil Bhattacharyya similarly warned that food and fuel shocks could spread across the economy. He said there had been limited pass-through so far, but the shift towards higher inflation readings warranted close monitoring.
Why BofA Is Less Convinced
BofA described the August decision as a "dovish hold", saying the minutes showed a cautious approach from MPC members.
The brokerage said policymakers had acknowledged the possibility of tightening, but remained data dependent. It expects the real rate to turn negative in Q3FY27 and stay negative until Q1FY28 based on the RBI's revised inflation projections.
"Coupled with robust growth outlook, we retain our call for 50 bps of hikes in FY27," BofA said.
The RBI kept the repo rate at 5.25% and retained its neutral stance at the Aug. 3-5 meeting. The decision was unanimous.
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What Could Trigger A Move
The minutes suggest that the RBI is looking for evidence that the current rise in prices is spreading beyond food and fuel.
Malhotra said a monetary response to a supply shock would be warranted if there were signs of inflation becoming more widespread, inflation expectations becoming unanchored or price pressures becoming persistent. He said there were limited signs of this so far.
At the same time, he acknowledged that inflation was moving up from the unusually low levels seen last year. Core inflation is projected to average 4.3% in FY27, while core inflation excluding precious metals is expected to converge with core inflation in the final quarter of the financial year. Malhotra said this could point to a need to recalibrate the policy rate.
Poonam Gupta was more direct on the possibility of a hike. She said there was no scope for further easing at present and that a rate hike could emerge during the year as inflation is expected to peak at 5.9% in Q3FY27. She still voted to keep the repo rate unchanged, saying the future course of policy should remain data dependent.
For now, the two brokerages agree on the broad direction but not on the tone. Goldman Sachs sees the minutes as a sign that the RBI is moving closer to tightening, while BofA sees more reason to wait for the data before drawing that conclusion. Both expect 50 bps of rate hikes in FY27.
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