Kumud Das Mumbai

TheReserve Bank of India (RBI) may consider an unscheduled rate hike before its next bimonthly monetary policy review in December, with the possibility of a cumulative 50-basis-point increase by the end of the calendar year, economists and market participants say.

“There is a possibility of an inter-meeting hike, given the RBI Governor’s signalling that monetary policy may be used to defend the rupee,” Kanika Pasricha, chief economic advisor at Union Bank of India, told Bizz Buzz.

Wholesale price inflation (WPI) is likely to remain elevated and in double digits in the near term, driven by sustained pressure from fuel and manufactured products. Food prices will depend on the progress of the kharif harvest.

Union Bank of India’s research estimates FY27 WPI inflation at 10.5 per cent, assuming average crude oil prices of $90-95 per barrel. The projection faces upside risks if crude stays above $100 per barrel and a super El Niño affects the rabi crop. The bank’s study does not rule out a 50-basis-point rate hike in December.

MV Hariharan, former treasury head at State Bank of India (SBI), said the RBI appeared inclined towards gradual rate increases rather than a large, one-time hike. However, volatile prices and demand pressures could warrant more frequent action.

SBI’s internal economic research estimates that the peak policy rate could reach 6 per cent, citing persistent rupee weakness and the need to contain inflation and anchor expectations.

Meanwhile, government debt auctions have reflected growing market concerns over interest rates. The RBI recently cancelled auctions of 182-day and 364-day Treasury bills, while it had rejected bids across all three tenors at the end of March.

“Markets are expecting at least another 75 basis points of rate hikes and people are now on the negative side, which is leading to more cautious bidding for bills,” said Avnish Jain, chief investment officer for fixed income at Canara Robeco Mutual Fund.

In the five weeks to October 14, cut-off yields on three Treasury bill maturities rose by 64, 83 and 69 basis points, respectively. The spread between 364-day Treasury bills and the RBI policy rate touched 99 basis points, a four-year high.