The Reserve Bank of India is likely to raise the repo rate by 25 basis points to 5.5 per cent this month, according to a report from HSBC Global Investment Research, which also warned that consumer inflation could climb to about 5.5 per cent in September and average just over 6 per cent in the fourth quarter of 2026.
The report, carried by IANS on Tuesday, argued that roughly Rs 6 trillion of liquidity will need to be withdrawn from the banking system over the coming months. About Rs 2 trillion of that could be absorbed by currency in circulation, with the rest managed through instruments such as open market operation sales, foreign-exchange spot sales, FX swaps and variable rate reverse repos. The drain, HSBC said, is likely to be gradual unless the central bank resorts to blunt tools like a cash reserve ratio hike.
"There has been a sequential rise in core inflation, led particularly by service inflation, which had been the most stubborn to rise thus far," the report noted, forecasting inflation to average over 5 per cent for the next 12 months.
HSBC pointed to an uncomfortable external backdrop: oil prices trending above $100 a barrel, with its 2027 oil forecast revised up by $20 a barrel to $85, plus higher global bond yields and a firmer dollar — a combination that is typically unfavourable for capital inflows into emerging markets and has coincided with recent outflows.
The note also stressed the resilience of India's economy, driven increasingly by goods exports. It cited a 12 per cent month-on-month, seasonally adjusted jump in exports to the United Kingdom one month after the UK-India free trade agreement took effect, adding that "high-tech exports are on the rise" and mid-tech exports could follow once more free trade agreements become operational.
Sources:
IANS: October rate hike likely at 25 bps, September inflation could touch 5.5 pc: Report
The report, carried by IANS on Tuesday, argued that roughly Rs 6 trillion of liquidity will need to be withdrawn from the banking system over the coming months. About Rs 2 trillion of that could be absorbed by currency in circulation, with the rest managed through instruments such as open market operation sales, foreign-exchange spot sales, FX swaps and variable rate reverse repos. The drain, HSBC said, is likely to be gradual unless the central bank resorts to blunt tools like a cash reserve ratio hike.
"There has been a sequential rise in core inflation, led particularly by service inflation, which had been the most stubborn to rise thus far," the report noted, forecasting inflation to average over 5 per cent for the next 12 months.
HSBC pointed to an uncomfortable external backdrop: oil prices trending above $100 a barrel, with its 2027 oil forecast revised up by $20 a barrel to $85, plus higher global bond yields and a firmer dollar — a combination that is typically unfavourable for capital inflows into emerging markets and has coincided with recent outflows.
The note also stressed the resilience of India's economy, driven increasingly by goods exports. It cited a 12 per cent month-on-month, seasonally adjusted jump in exports to the United Kingdom one month after the UK-India free trade agreement took effect, adding that "high-tech exports are on the rise" and mid-tech exports could follow once more free trade agreements become operational.
Sources:
IANS: October rate hike likely at 25 bps, September inflation could touch 5.5 pc: Report
