RBI rate hike: ICRA sees one more 25-bps hike, Axis MF expects up to 75 bps more

The RBI’s 25-bps repo rate hike to 5.50% has raised expectations of further monetary tightening as inflation risks remain elevated. While ICRA expects one more 25-bps hike in December, Axis Mutual Fund sees scope for another 50-75 bps of increases in the near term.

The Reserve Bank of India (RBI) raised the policy repo rate by 25 basis points to 5.50% on October 7, marking its first rate increase since February 2023. The Monetary Policy Committee (MPC) also shifted its stance from neutral to calibrated tightening, signalling a more cautious approach to inflation risks.

The RBI raised its FY27 inflation forecast to 5.2% from 5%, while increasing its GDP growth projection to 7.1% from 6.7%. The combination of resilient growth and persistent inflation risks has opened the door to further rate increases.

In its report post repo rate announcement, SBI Research also said that it expects the RBI’s repo rate to rise to 6% by December, with a possible 50 bps hike, as inflation may peak at 6.8% in November 2026. The RBI has already raised the repo rate to 5.50% and shifted its stance from neutral to calibrated tightening.

ICRA sees one more hike in December

ICRA expects the RBI to raise the repo rate by another 25 basis points in December, taking the rate to 5.75%. It expects the central bank to then pause, unless inflation delivers a significant upside surprise.

MUST READ: SBI Research expects 6% repo rate: Why inflation is forcing RBI’s hand

The rating agency highlighted risks from crude oil prices, food inflation, weather conditions and the broader normalisation of inflation. If crude prices remain around $100 a barrel, inflation could rise to 5.3-5.5%, while GDP growth could slow to around 6.8%.

ICRA expects the RBI to remain focused on containing inflation even as domestic economic activity remains relatively strong.

Axis MF sees scope for 50-75 bps more

Axis Mutual Fund has a more hawkish view of the rate trajectory. It expects another 50-75 basis points of tightening in the near term, potentially taking the operative policy rate to around 6-6.25%.

The fund house pointed to several factors that could keep pressure on the RBI, including higher crude prices, a weaker rupee, elevated global bond yields and a hawkish US Federal Reserve.

Liquidity conditions could also play a role. Axis MF estimates that the banking system has surplus liquidity of around ₹3-4 lakh crore and expects the RBI to use tools such as open-market operations, foreign-exchange transactions and variable-rate reverse repos to gradually withdraw excess liquidity.

Repo rate revision in FY27

Bond yields remain under pressure

The rate outlook is also important for the bond market. Axis MF expects the 10-year government bond yield to remain in the 7.10-7.40% range through the remainder of 2026. ICRA expects it to remain around 7.15-7.35% in the near term.

ALSO READ: Rupee nears record low at 96.84, but RBI Governor says currency may be undervalued

Axis MF favours shorter-duration debt, particularly one-to-three-year high-quality corporate bonds, while recommending caution on longer-duration securities until the risk-reward improves.

What happens next?

The difference between ICRA and Axis MF forecasts shows that the October rate hike may not necessarily be a one-off move. The RBI’s next decisions are likely to depend heavily on the trajectory of crude prices, inflation, the rupee and global financial conditions.

For borrowers, further hikes could keep floating-rate loan costs elevated. For fixed-income investors, however, higher policy rates and attractive short-duration yields could create opportunities, particularly if inflation eventually begins to moderate.

DO READ: RBI hikes repo rate: Your FD could pay more, but bonds may take a hit. What investors should know