After the Federal Reserve raised interest rates by 25 basis points, taking the policy range to 3.75–4 per cent, all eyes are now on the Reserve Bank of India’s (RBI) upcoming Monetary Policy Committee (MPC) meeting, scheduled from October 5 to 7.
Experts said that the key point is not the size of the increase, but the change in direction, and expect the RBI to consider 50bps hikes in both the October and December policy meetings this year, which would take the repo rate to 5.75 per cent from 5.25 per cent.
For India, the Fed’s outcome matters because it reduces the comfort level that the RBI had earlier, Vinit Bolinjkar, head of research at Ventura, said, adding that a narrower gap between Indian and US interest rates can keep pressure on the rupee and reduce foreign investor interest in Indian bonds.
Food inflation is close to 6 per cent, while core inflation has also risen gradually, suggesting price pressures are broadening beyond a few categories.
Rising headline inflation a ruse to hike?
“Conditions have become less supportive for any cuts — inflation is rising, wholesale prices remain elevated, bond yields are near 7 per cent, and the Fed has shifted back towards rate increases. Overall, these factors leave limited room for the RBI as it approaches its 5–7 October meeting,” he said.
“A 25bps RBI rate hike is possible, but not a certainty. The key trigger would be persistent inflation, particularly if elevated crude prices start feeding into domestic inflation and put pressure on the rupee. The RBI would also be mindful of the impact of higher rates on growth,” Nikunj Saraf, CEO, Choice Wealth, said.
Meanwhile, Axis Capital said that Fed’s latest hike and dot plot strengthen the case for 50bps of RBI tightening in CY26, split between October and December.
“We expect the overall hiking cycle to be limited to 75bps. Near term, the RBI’s focus is likely to remain on draining surplus liquidity and bringing overnight rates, currently 45bps below the policy rate, back into alignment with the policy rate,” the brokerage said.
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