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HSBC Sees Two RBI Rate Hikes in FY27 on Energy, El Nino Shocks

HSBC expects the RBI to raise interest rates twice in FY27 due to inflationary pressures from energy price shocks and potential El Nino weather disruptions. The report forecasts headline inflation averaging 5.6% and GDP growth slowing to 6% in FY27. The overlapping shocks could particularly impact the informal sector, including rural households and small businesses. The RBI may avoid aggressive rate hikes to balance inflation control with slowing economic growth.

Key Points: RBI to Hike Rates Twice in FY27: HSBC Report

  • HSBC expects two RBI rate hikes in FY27
  • Inflation to average 5.6% due to energy and El Nino shocks
  • GDP growth forecast cut to 6% from 7.4%
  • Informal sector likely to be hit hardest
2 min read

Amid energy, El Nino shocks, RBI may deliver two rate hikes this financial year: HSBC Report

HSBC report warns of two RBI rate hikes in FY27 due to energy and El Nino shocks. Inflation could average 5.6%, GDP growth seen at 6%.

"With the energy and El Nino shocks coinciding, the FY27 outlook needs attention. - HSBC Report"

New Delhi, May 11

The Reserve Bank of India is expected to raise interest rates twice in the current financial year FY27 due to inflationary pressures arising from rising energy prices and the possible impact of El Nino weather conditions, according to a report by HSBC.

The report stated that the combination of energy shocks and El Nino-related disruptions could push inflation higher and slow down economic growth during FY27.

According to the report, HSBC expects headline inflation to average 5.6 per cent in FY27 after factoring in the impact of higher energy prices and temperature-related food inflation.

"With the energy and El Nino shocks coinciding, the FY27 outlook needs attention. Our model suggests the El Nino/temperature channel can add 0.5ppt to inflation over a year.... On this basis, we expect the RBI to deliver two rate hikes, over 4Q26 and 1Q27, taking the repo rate to 5.75 per cent," the report stated.

The report highlighted that the overlap of multiple shocks, including energy, industrial feedstock costs and a likely El Nino event, has increased concerns over inflation and economic growth.

The report noted that if temperature increases remain in line with the average seen over the last 10 years, food inflation could rise significantly due to weather-related disruptions.

It added that if El Nino conditions emerge later in 2026, a large part of the inflationary impact may be felt in 2027.

The report also warned that a severe El Nino event could lead to even sharper increases in food prices.

However, it added that higher foodgrain stocks and full granaries could help ease some inflationary pressures.

Despite the expected inflation rise, HSBC said the RBI may avoid aggressive rate hikes because economic growth is also likely to slow down.

The report projected India's GDP growth at 6 per cent in FY27, lower than HSBC's earlier forecast of 7.4 per cent.

According to the report, the impact of these shocks is expected to be felt more strongly in the informal sector, including rural households and small businesses.

The report stated that this could change the current drivers of India's economic growth.

HSBC also highlighted that the ongoing rise in energy prices, combined with industrial cost pressures and climate-related disruptions, could create a difficult macroeconomic environment for policymakers during FY27.

The report added that the RBI will likely have to balance inflation control with growth concerns while deciding its future monetary policy actions.

- ANI

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Reader Comments

P
Priya S
Good that the RBI is being proactive about inflation. A 5.6% average inflation is still manageable, but we need to protect the informal sector. Rural households already struggling with rising input costs. Hope the government steps up with some support schemes too.
S
Sarah B
As someone living in the UK, I can tell you energy price shocks are no joke. India should invest more in renewable energy to reduce dependence on volatile global markets. 6% GDP growth is still decent, but we need to shield small businesses and farmers from these shocks.
V
Vikram M
Let's not forget the El Nino angle. Last time we had a severe one, onion prices made us cry all year! 😅 At least we have good foodgrain stocks now. But HSBC's 7.4% to 6% GDP forecast drop is concerning. RBI must strike a fine balance.
M
Michael C
The RBI's approach seems prudent. 0.5 ppt inflation from temperature channel is significant. Two rate hikes over 4Q26 and 1Q27 makes sense to front-load tightening before El Nino's full impact hits. Hope the government also works on long-term climate resilience for agriculture.
R
Rohit P
Honestly, this feels like standard HSBC doom-mongering to me. Our RBI has managed inflation well so far, and with good monsoon prediction and buffer stocks, we can handle this. But yes, energy prices are a global issue - need to ramp up solar and wind capacity pronto!

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