Standard Chartered Bank economists Anubhuti Sahay and Saurav Anand have revised their forecast for the Reserve Bank of India’s (RBI) repo rate, now expecting a cumulative 50 basis points (bps) increase to 5.75% in FY27, starting in June. This marks a change from their previous expectation of a status quo at 5.25% [1]. The revision is attributed to an upward adjustment in their FY27 Consumer Price Index (CPI) inflation forecast to 4.9% from 4.7%, as well as increased depreciation pressure on the Indian rupee (INR), which is currently trading at 96.80 versus their earlier June-end forecast of 93 [1].
The economists highlight that while the Monetary Policy Committee (MPC) has emphasized that repo rate decisions are primarily driven by domestic growth and inflation dynamics rather than currency defense, the sharper-than-expected INR depreciation raises the risk of second-order effects on CPI, thereby strengthening the case for a rate hike [1]. They now anticipate the MPC will begin hiking rates from the June meeting, citing rising domestic inflation risks and higher global yields, with some Asian central banks already having delivered surprise hikes [1].
Standard Chartered’s revised four-quarters-ahead CPI inflation forecast stands at 5.1%, up from their prior forecast of 4.7% and compared to last year’s CPI of 2.1%. Although inflation is expected to remain within the MPC’s mandated 2-6% target range (with 4% as the medium-term target), the risk of persistent inflation is seen as likely to trigger a policy response [1].
The bank expects the 50bps of hikes to be split equally between June and August, but notes that if there is no hike in June, the full 50bps could be implemented in August. Additionally, they see a risk of an extra 25-50bps of hikes in FY27 if inflation exceeds expectations due to ongoing commodity price pressures and further INR weakness [1].
CONCLUSION
Standard Chartered’s revised outlook signals a more hawkish stance from the RBI in response to rising inflation and currency pressures. The potential for additional rate hikes remains if inflationary risks persist, highlighting increased uncertainty for India’s monetary policy trajectory.