RBI MPC Minutes Signal Hawkish Shift; Rate Hike Possible In Q4FY27 Amid Widening Inflation Risks: ICICI Bank

New Delhi, Aug 20 (KNN) The minutes of the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting indicate a more ‘hawkish’ stance than the accompanying policy statement, with members highlighting risks of inflation becoming broader amid strong domestic demand, ICICI Bank said in a research report.

The report noted that the minutes placed greater emphasis on the possibility of higher energy and food prices feeding into broader inflation in the coming months. 

“Minutes of MPC meeting should be perceived as hawkish as against the policy statement which was seen as dovish,” ANI reported, citing the report.

Rate Hike Expectations

ICICI Bank expects headline inflation to average 5.6 per cent in the second half of FY27, while core Consumer Price Index (CPI) excluding gold could rise above 4 per cent in Q4FY27.

The report said MPC members could favour a rate increase if demand-driven inflation begins converging with core inflation. It noted that policymakers were increasingly focused on the potential pass-through of higher food and energy prices.

Enterprise surveys, household inflation expectations and price increases across chemicals, plastics, rubber and commercial LPG were cited as signs that supply-side price pressures could be spreading across the economy.

“One of the RBI members on the committee stated that CPI peaking at 5.9 per cent in Q3FY27 may build the case for a rate hike,” according to the report.

The Governor’s assessment also suggested that a convergence in core CPI, excluding precious metals, could warrant a recalibration of monetary policy. ICICI Bank expects this threshold to be reached in Q4FY27 under its current inflation trajectory.

Growth Remains Resilient

Despite external risks, MPC members remained positive about India’s growth outlook. Vehicle sales, credit growth, government capital expenditure and the performance of listed companies were cited as indicators of sustained domestic economic momentum.

The RBI has raised its FY27 GDP growth projection by 10 basis points to 6.7 per cent.

However, ICICI Bank identified US tariffs, elevated energy prices and potentially weaker agricultural output as key downside risks to growth.

Rate Hike Cycle Could Begin in Q4FY27

The research report expects headline inflation to average 4.8 per cent in FY27 but cautioned that persistently high crude oil prices or stronger food inflation could bring forward the timing of monetary tightening.

Its base case is for rate hikes to begin once core CPI excluding gold rises above 4 per cent in Q4FY27. The brokerage estimates a cumulative increase of around 50 basis points during the potential tightening cycle.

A larger 75-basis-point increase remains possible if oil prices stay elevated and inflationary pressures pass through more strongly than expected, although ICICI Bank does not consider this its base case.

The report said a sustained rise in oil prices combined with higher global interest rates could bring the start of the rate-hike cycle closer to December rather than February or April.

(KNN Bureau)