RBI Hikes Report Rate: The Reserve Bank of India's shift to a “calibrated tightening” stance has changed the rate outlook sharply, with brokerages now expecting further hikes but differing on how far the central bank will ultimately go.
Bank of America has reiterated its call for as much as 100 basis points of tightening, while Kotak Securities, Goldman Sachs, Citi and HSBC see a shallower cycle, largely centred around another 50 basis points.
The divergence comes after the RBI raised the repo rate by 25 basis points to 5.5% on Wednesday and moved away from monetary accommodation. While the hike itself was widely expected, the change in stance has become the bigger signal for markets, with several brokerages now bringing additional rate increases into their base cases.
Also Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay
BofA Sees A Longer, Deeper Rate-Hike Cycle
BofA views the policy decision as a broader reset, arguing that the change in stance indicates a long rate-hiking cycle.
The brokerage said the stance change came earlier than expected and believes the RBI will maintain a hawkish bias, with the possibility of a deeper rate-hike cycle going forward.
ALSO READ: RBI Shifts Stance, Hikes Repo Rate For First Time Since February 2023 As Inflation Concerns Mount
BofA has therefore reiterated its call for 100 basis points of rate hikes.
On liquidity and forex, the brokerage noted that the RBI announced no specific measures and will instead use the tools available to it.
Kotak Securities Sees 50 Bps More Tightening
Kotak Securities expects the change in stance to signal more rate hikes, although it sees the cycle as relatively shallow.
The brokerage expects another 50 basis points of tightening in its base case, with the repo rate rising by 25 basis points each in December and February.
However, Kotak Securities sees upside risks to its rate outlook if food and fuel price shocks intensify.
Goldman Sachs Keeps 6.25% Terminal Rate Call
Goldman Sachs continues to expect the terminal repo rate at 6.25%.
The brokerage retains its call for a 25-basis-point hike in the December meeting, followed by another 50 basis points of tightening in the first half of CY27.
Going forward, Goldman Sachs said it will watch whether price pressures broaden across the core inflation basket, particularly through diffusion indices.
Citi Sees Two More 25 Bps Hikes
Citi now expects two additional 25-basis-point hikes in its base case.
The brokerage said the RBI's calibrated tightening stance reinforces its view of at least a 6% terminal repo rate during this cycle.
For rates to move beyond 6%, however, Citi believes there would need to be a more severe inflationary impact from elevated oil prices, stronger demand or El Nino.
On liquidity, Citi expects normalisation to be driven by organic factors rather than aggressive RBI intervention.
HSBC Expects A Mild Hiking Cycle
HSBC takes a less aggressive view on the road ahead, arguing that the new stance is more consistent with mild rate hikes rather than a deep tightening cycle.
The brokerage continues to forecast a 25-basis-point hike in December and does not expect this to develop into a deep rate-hiking cycle.
HSBC also believes interest-rate hikes are not being prioritised as a tool to support the rupee. If currency pressures persist, it expects other measures to attract inflows, including FDI and tax incentives, could come into play.
Why The RBI Has Turned Hawkish
The repo rate now stands at 5.5%, up from 5.25%, marking the first rate hike since February 2023. The SDF rate is at 5.25%, while the MSF rate and Bank Rate stand at 5.75%.
The shift to “calibrated tightening” was backed by four of the six MPC members.
RBI Governor Sanjay Malhotra said rate cuts are off the table in the near term amid external headwinds and rising inflation risks. The RBI has also raised its inflation projections, with FY27 CPI inflation now estimated at 5.2%, compared with 5% previously.
The inflation outlook has been clouded by deficient rainfall and the risk of higher food inflation, while headline CPI inflation rose to 4.82% in August.
RBI Raises FY27 GDP Forecast To 7.1%
Despite the more hawkish inflation stance, the RBI has become more optimistic about economic growth.
The central bank raised its FY27 GDP growth forecast to 7.1% from 6.7%. Its Q2 growth estimate was raised to 7.2% from 6.4%, while the Q3 forecast was increased to 6.9% from 6.5%. The Q4 estimate was retained at 6.8%.
For Q1 FY28, however, the growth forecast was lowered slightly to 7.1% from 7.3%.
The market now has a clearer rate-hike signal from the RBI, but the brokerages remain divided over its eventual destination.
For BofA, the shift could mark the start of a much longer tightening cycle; for Kotak Securities, Goldman Sachs, Citi and HSBC, the more likely outcome is a measured series of hikes, with inflation ultimately determining whether the RBI goes beyond the 6%–6.25% zone.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
