RBI Rate Hike Cycle Could Take Repo Rate To 6% By FY27: Union Bank, ICICI

New Delhi, Oct 6 (KNN) The Reserve Bank of India (RBI) is expected to begin a rate-hike cycle that could take the repo rate to 6 per cent by the end of FY27, as rising inflation, elevated global yields and resilient domestic growth strengthen the case for tighter monetary policy, according to research reports by Union Bank of India and ICICI Bank.

The reports, released ahead of the second day of the RBI Monetary Policy Committee's October 5-7 meeting, broadly project cumulative tightening of 75 basis points, although they differ on the likely policy stance.

Union Bank expects the MPC to raise the repo rate by 25 basis points to 5.50 per cent in the current review and gradually move towards a tightening stance. It has projected the repo rate reaching 6 per cent by the end of FY27, reported ANI.

ICICI Bank also sees a 75-basis-point rate-hike cycle as its base case, which it estimates would keep real interest rates between 1.4 and 1.9 per cent. However, it expects the MPC to retain a neutral stance and remain data-dependent amid global uncertainties.

Inflation, Oil Prices Key Risks

ICICI Bank raised its FY27 CPI inflation forecast to 5.1 per cent from 5 per cent and expects inflation to become more broad-based, with core inflation also rising. It projects CPI inflation peaking at around 5.9 per cent in Q3FY27.

Union Bank has a higher FY27 inflation forecast of around 5.4 per cent and expects inflation to exceed 6 per cent during parts of the second half of FY27, citing deficient monsoon conditions and crude oil prices near USD 100 a barrel.

Liquidity Also In Focus

ICICI Bank said domestic and external developments warrant tighter policy, noting that core liquidity has increased sharply following foreign-currency inflows. It expects the RBI to continue using open market and foreign-exchange operations to manage liquidity.

The eventual size of the rate cycle will depend on oil prices, global monetary policy and monsoon conditions. Union Bank estimates that easing geopolitical tensions could limit tightening to 50-75 basis points, while a prolonged oil price shock could push the cycle towards 100-125 basis points.

(KNN Bureau)