RBI will need to hike interest rates before long

The energy shock has taken a toll on India’s economy but GDP growth should still average around 6.5% in 2026-27, an enviable rate by global standards. Rising food prices on account of a weak monsoon will push headline inflation to the upper bound of the RBI’s 2-6% target range over the coming months and we think the central bank will raise interest rates before long. We expect 75bps of hikes to the repo rate to 6.00% by early 2027 – a more hawkish view than the consensus.