Standard Chartered economists now expect the Reserve Bank of India to raise the repo rate by 50bps to 5.75% in FY27 (year ending March 2027), instead of keeping it at 5.25%. The bank links the change to higher inflation expectations, rupee weakness, and global yield pressure.<\/p>\n
Their FY27 CPI forecast is raised to 4.9% from 4.7%, and their four-quarters-ahead CPI forecast is lifted to 5.1% from 4.7%. This compares with last year\u2019s CPI of 2.1%, while the RBI\u2019s target range is 2\u20136% with a 4% medium-term aim.<\/p>\n
The rupee is reported at 96.80, compared with a June-end forecast of 93, which is seen as adding to CPI risks through knock-on effects. The bank expects the Monetary Policy Committee to start hiking from the June meeting.<\/p>\n
The 50bps rise is expected to be split between June and August, or delivered in August if June is skipped. It also allows for an extra 25\u201350bps of hikes in FY27 if commodity prices rise further and the rupee stays weak.<\/p>\n
With expectations shifting toward rate hikes starting in June, we should be positioning for higher interest rates. The forecast for FY27 inflation has been revised up to 4.9%, and our own four-quarters-ahead view is now at 5.1%, a big jump from the 2.1% CPI we saw last year. The latest CPI data for April 2026, which came in at 5.2%, confirms that price pressures are building and supports the view that the central bank must act soon.<\/p>\n
The rapid depreciation of the rupee, now trading at 96.80 to the dollar, is a major factor driving this outlook. This weakness makes imports more expensive and fuels inflation, strengthening the case for a defensive rate hike. This currency pressure is amplified by a firm U.S. Federal Reserve, which has held its own rates steady amid stubborn American inflation, pulling capital away from emerging markets.<\/p>\n
We should consider entering interest rate swaps to profit from the expected 50 basis point hike. The one-year overnight indexed swap (OIS) rate has already risen to 6.05% in May, showing that the market is beginning to price in these future hikes. A 25 basis point move is anticipated for the June meeting, with another to follow in August.<\/p>\n
Given the increased uncertainty, volatility in both currency and bond markets is likely to rise in the coming weeks. We can use options to take advantage of this, such as buying puts on government bonds or calls on the USD\/INR pair. The sharp fall in the rupee is a clear signal that currency hedging or speculative long dollar positions could be profitable.<\/p>\n
Looking back, we remember the aggressive rate hike cycle in 2022 and 2023 when the Reserve Bank of India moved decisively to control inflation. The current situation, with rising domestic price risks and global pressures, mirrors the setup for that period. Therefore, we should not underestimate the RBI’s willingness to act forcefully, even if it means hiking by 50 basis points in a single meeting.<\/p>\n
There is also a risk of more than 50 basis points of hikes if conditions worsen. Continued strength in commodity prices is a key variable to watch, as Brent crude has been trading stubbornly above $105 a barrel. This adds further upside risk to inflation and could force the central bank into an even more aggressive policy response later in the year.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Standard Chartered sees RBI hiking FY27 repo to 5.75% on inflation risks, weak rupee, global yields.<\/p>\n","protected":false},"author":103,"featured_media":17024,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[46],"class_list":["post-53848","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates","tag-policy"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t