The Reserve Bank of India is likely to increase its policy repo rate by 25 basis points to 5.50% in October, balancing rising inflation threats against resilient domestic growth, with a cautious outlook for further hikes.
The Reserve Bank of India is likely to lift its policy repo rate by 25 basis points to 5.50% at its 7 October monetary policy meeting, according to Barclays, as the central bank weighs a renewed inflation threat against still-firm domestic activity. The bank is also expected to keep its “neutral” policy stance, with another quarter-point increase pencilled in for December that would take the terminal repo rate to 5.75%. Barclays said that sequence has become more plausible as price pressures have strengthened and growth has held up better than many economists expected.
The argument for a move now rather than later rests largely on inflation. Barclays expects consumer prices to rise above 5% in September and potentially peak between October and December, helped by global crude prices that have stayed above $100 a barrel. That would complicate the RBI’s effort to keep inflation anchored without derailing expansion. The International Monetary Fund said in December 2023 that India’s economy had remained resilient, with inflation moderating even as activity stayed strong, while S&P Global reported in October 2023 that manufacturing output and services activity were still expanding at a rapid pace.
Recent growth data have reinforced that view. Barclays pointed to stronger-than-expected gross domestic product growth in the April-to-June quarter and to high-frequency indicators from July and August that suggest demand has remained resilient. If that pattern continues, the RBI could raise both its inflation and growth forecasts at the October meeting. The central bank has taken a similar stance before: in February 2023, it increased the repo rate by 25 basis points to 6.50% as it sought to balance inflation control with support for growth amid geopolitical tensions and high oil prices.
Even if the October move goes ahead, the broader message would be one of caution rather than alarm. A neutral stance signals that policymakers are not committing to an extended tightening cycle, but are still willing to act if price pressures worsen. For markets, that would leave the focus on how quickly inflation peaks, whether crude remains elevated and whether the recent resilience in output and consumption continues into the final months of the year.
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