The Reserve Bank of India (RBI) may adopt a more aggressive stance on interest rates than expected. Foreign brokerage firm Nomura estimates that the RBI could increase the repo rate by a total of 50 basis points by December this year. This is likely to increase interest rates on loans and could also impact home and car loan EMIs.

RBI's Monetary Policy Committee (MPC) will meet on
October 5, beginning October 7. The decisions of this meeting will be announced on October 7. RBI Governor Sanjay Malhotra will announce the monetary policy at 10 am.

Nomura estimates that the repo rate could rise by 25 basis points at the October meeting and another 25 basis points at the December meeting. If this happens, the repo rate is likely to reach 5.75%.

Interest rate hikes are expected to control inflation.
According to Nomura, the primary objective behind a potential interest rate hike is expected to be to control inflation. Rising food and energy prices are expected to exert upward pressure on inflation in the coming months. The brokerage firm forecasts average CPI inflation at 5.2% in FY27, and it is expected to reach close to the RBI's target of 4% in FY28.

Rising crude oil prices
are also a contributing factor to inflation. Rising crude oil prices are reportedly surpassing $106 per barrel. This is likely to impact the prices of many goods and services, including petrol and diesel.

Meanwhile, banks may increase interest rates on loans following the repo rate hike. This is likely to impact EMIs for existing employees as well as new loan customers on floating rates. However, the final decision will be clear only after the RBI's MPC meeting.

PC: INDIA