NEW DELHI — Nomura’s latest monetary policy outlook for the Reserve Bank of India (RBI) diverges sharply from market expectations, projecting a total of 50 basis points (bps) in rate hikes to lift the repo rate to 5.75% by the end of 2026. The brokerage’s forecast contrasts with the 125‑bps increase that market participants are pricing in, reflecting a belief that inflationary pressures will moderate faster than analysts anticipate.
Nomura’s Two‑Hike Scenario
According to a report by Outlook Money, Nomura’s research team has identified two 25‑bps hikes as the most likely path for the RBI. The bank’s analysts argue that the current inflation trajectory, driven by a gradual decline in food and fuel prices, will allow the RBI to keep the repo rate at 5.75% by the end of the year. The forecast is based on the RBI’s recent policy statements and the committee’s emphasis on a “data‑driven” approach to tightening.
Market Consensus and the 125‑bps Bet
Market participants, as reflected in the consensus of major bond traders and institutional investors, are pricing in a 125‑bps rise in the repo rate. This expectation is built on the assumption that the RBI will continue its aggressive stance to curb inflation, which has remained above the 4%–6% target band for the past two quarters. The higher forecast aligns with the prevailing view that the central bank will need to maintain a tighter stance to prevent a resurgence of price pressures.
Inflation Context
The Consumer Price Index (CPI) for August 2026 rose 2.1% year‑on‑year, a decline from the 3.4% increase seen in July. Core inflation, which excludes volatile food and fuel items, fell to 4.8% from 5.2% in the previous month. Nomura’s analysts note that the recent easing in headline inflation could allow the RBI to slow its tightening cycle, whereas market participants remain wary of potential supply‑chain disruptions that could reignite price gains.
RBI’s Policy Stance
In its latest policy statement released on 27 September 2026, the RBI’s Monetary Policy Committee (MPC) reaffirmed its commitment to a “data‑driven” approach and highlighted the need to keep the repo rate at 5.25% for the next two policy meetings. The committee cited the recent decline in inflation as a key factor that could provide room for a more measured tightening path. The RBI’s decision to maintain the rate at 5.25% for the next two meetings is a signal that it may not pursue aggressive hikes in the near term.
Implications for Markets
Bond markets have adjusted to the divergent outlooks. The 10‑year government bond yield has traded around 6.15%, reflecting the market’s 125‑bps expectation. Nomura’s more modest forecast could lead to a shift in bond pricing if the RBI follows a gentler tightening path. Equity markets, meanwhile, have shown resilience, with the BSE Sensex up 0.8% on the day of the report, as investors weigh the potential impact of a slower rate rise on corporate earnings.
Broader Economic Impact
A 50‑bps increase would keep the repo rate at 5.75% by year‑end, which would moderate borrowing costs for businesses and households. The RBI’s cautious approach could support credit growth, especially in the small‑ and medium‑enterprise sector, which has been sensitive to higher rates. Conversely, a 125‑bps rise would tighten the monetary environment further, potentially slowing the pace of economic expansion and dampening consumer spending.
Conclusion
Nomura’s forecast underscores a growing debate among market participants about the pace of RBI tightening. While the central bank’s recent statements suggest a more measured approach, the market’s 125‑bps expectation reflects lingering concerns about inflation persistence. The next policy meeting on 10 October 2026 will be pivotal in determining whether the RBI follows Nomura’s conservative path or adheres to the market’s more hawkish stance.
