The Reserve Bank of India (RBI) has raised the policy repo rate by 25 basis points to 5.50%, triggering expectations of further monetary tightening as inflation risks remain elevated.

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The October 7 rate increase was the RBI’s first repo rate hike since February 2023. Along with the hike, the Monetary Policy Committee (MPC) shifted its stance from neutral to calibrated tightening, signalling greater focus on inflation risks.

The RBI has also raised its FY27 inflation forecast to 5.2% from 5%, while increasing its GDP growth projection to 7.1% from 6.7%.

ICRA expects another 25-bps hike

ICRA expects the RBI to raise the repo rate by another 25 basis points in December, taking it to 5.75%. The rating agency expects the central bank to pause after that unless inflation rises significantly above expectations.

ICRA highlighted crude oil prices, food inflation and weather conditions as key risks. If crude prices remain near $100 a barrel, inflation could reach 5.3%-5.5%, while GDP growth may slow to around 6.8%.

Axis MF sees up to 75 bps more

Axis Mutual Fund has a more hawkish outlook, expecting another 50-75 basis points of tightening in the near term. This could take the operative policy rate to around 6%-6.25%.

The fund house cited higher crude prices, a weaker rupee, elevated global bond yields and a hawkish US Federal Reserve as factors that could increase pressure on the RBI to raise rates further.