Emkay Global Projects RBI to Hike Interest Rates by 50 Basis Points by February 2027

Emkay Global Financial Services expects the Reserve Bank of India (RBI) to implement further interest-rate increases, citing mounting inflationary pressures and tighter global financial conditions. According to the firm's report analyzing the minutes of the RBI’s October Monetary Policy Committee (MPC) meeting, the central bank is forecast to raise interest rates by another 50 basis points by February 2027.

The projection outlines a 25-basis-point hike in December 2026 and another 25-basis-point increase in February 2027. This trajectory would bring the total rate increase in the current tightening cycle to 75 basis points. At its October meeting, the RBI had raised the repo rate by 25 basis points to 5.50 per cent. While that decision was unanimous, the minutes indicated a split among MPC members over the policy stance, with four of the six members supporting a shift towards calibrated tightening.

Emkay's report noted that the MPC minutes supported further gradual rate hikes, though a significant extension of the tightening cycle remains unlikely without stronger evidence of persistent inflation. A primary concern highlighted by Emkay is the spread of inflation across goods and services. Data from the report shows that the share of items in the Consumer Price Index (CPI) basket recording inflation above 4 per cent increased from 20 per cent in March 2026 to 37 per cent in August and 46 per cent in September.

Despite the broader spread, the report pointed out limited evidence that these pressures have become firmly embedded in corporate pricing decisions. Furthermore, some MPC members maintained that current inflation is largely driven by supply-side factors.

External factors are also expected to play a role in central bank decisions. Emkay noted that higher interest rates in major economies could compel India to maintain an adequate interest-rate differential to support foreign debt inflows.

Meanwhile, broader economic indicators remain strong. India’s GDP grew by 7.8 per cent in the first quarter of FY2026-27, prompting the RBI to revise its full-year growth forecast upward to 7.1 per cent.

Emkay emphasized that future monetary policy moves will depend on how inflationary pressures evolve and persist, alongside shifts in global interest rates and capital flows. The firm clarified that its forecast represents its own assessment and does not constitute a confirmed decision by the central bank.

"As businesses and startups navigate the macroeconomic environment, potential interest rate hikes require careful financial planning and capital management. While India's strong GDP growth of 7.8% in the first quarter signals underlying economic resilience, rising inflation across the consumer basket and global financial tightening demand caution. Founders and business leaders must factor in potential shifts in borrowing costs and debt inflows as the central bank continues to calibrate its monetary policy stance." — Dr. Shishir Gupta, Founder & CEO, StartupLanes