India rates: Gradual hiking path – Standard Chartered

Standard Chartered Global Research argues India’s Monetary Policy Committee will raise the repo rate by 25bps to 5.50% in October and deliver another 25bps hike in December. The authors highlight rising domestic inflation, robust GDP growth and hawkish MPC minutes as justification.

MPC seen front-loading rate hikes

"We expect India’s Monetary Policy Committee (MPC) to hike the repo rate by 25bps to 5.50% in a unanimous vote at its 7 October announcement, followed by another 25bps increase in December."

"Beyond our baseline view of 50bps of hikes by December, we see a risk of a further 25-50bps increase in the repo rate if inflationary pressures prove stickier than expected."

"September CPI inflation is likely to print at 5.7% y/y and rise to above 6% by the December MPC meeting."

"With inflation mandated to remain within a 2-6% band and a medium-term target of 4%, waiting until inflation exceeds 6% to deliver the first hike could create the perception that the MPC is falling behind the curve."

"Additionally, a pause in October would be difficult to reconcile with the hawkish August minutes and the RBI Governor’s emphasis on the need to normalise the repo rate as average inflation rises towards 5% in FY27 (from 2.5% in FY26)."