RBI may raise repo rate next week, home and car loan EMIs set to rise
Ahead of the October 5-7 monetary policy meeting, analysts expect the RBI to raise the repo rate, pushing up loan EMIs.
The RBI has not made any major change to the repo rate for a while, but speculation is now rife that a significant revision is coming. If it happens, it will directly hit the common man. The Monetary Policy Committee's meeting is scheduled for next week, between October 5 and October 7, and it is believed that the committee could announce a sizeable increase in the repo rate this time.
The central banks of the United States and Japan have recently raised their key interest rates. The US Federal Reserve has also signalled that it could adopt a tighter policy in December. This has increased pressure on the RBI to raise interest rates as well.
According to international brokerage firm Nomura, the repo rate could rise by a total of up to 50 basis points by December. In its latest report, Nomura said the RBI's monetary policy is at a decisive turning point. Several Asian countries have raised their interest rates, but India has not made any change so far. However, rising oil prices, increasing grain prices and the Fed's rate hikes have put pressure on the RBI as well.
The stock market expects an increase of around 125 basis points over the next year, but Nomura's view differs. Nomura says inflation trends in India have eased. According to the firm, there is an 80 percent probability that the RBI will raise rates by 25 to 50 basis points by December, after which further rate hikes through February are less likely. Nomura also says there is only a 20 percent probability that the RBI will raise rates by more than 75 basis points over the year.
Nomura's Inflation Generalisation Index stood at 92.6 in August, higher than 84.8 in January, but still below the average level of 100. This suggests there are currently no strong signs of rising inflation. The index is a measure built by combining ten components, including the inflation rate, dispersion, inflation expectations and wage-related changes.
According to Nomura's estimates, India's Consumer Price Index, or CPI, inflation will be 5.2 percent in financial year 2027, and will ease to the medium-term target of 4 percent in financial year 2028. India's retail inflation rose from 4.45 percent in July to 4.82 percent in August this year. Nomura estimates the RBI will raise rates by 25 basis points each in October and December, taking the terminal rate to 5.75 percent.
