BofA sees RBI holding rates near term, expects 50 bps hike from Dec 2026 amid domestic inflation risks
New Delhi, July 10
The Reserve Bank of India is likely to keep policy rates unchanged in the near term, but BofA Securities expects a cumulative 50 basis points rate hike from December 2026 as inflation risks become increasingly driven by domestic factors.
According to the report, macroeconomic risks have shifted from geopolitical tensions to local weather conditions, which are expected to play a key role in shaping future monetary policy.
The firm has raised its FY27 GDP growth forecast to 6.9 per cent from 6.5 per cent, citing stronger consumption and investment demand.
The report projected FY27 consumer price index (CPI) inflation at 4.8 per cent, lower than earlier estimates. However, it warned that below-normal monsoon rainfall and rising El Nino risks could fuel food inflation in the second half of FY27 and affect rural economic activity.
It added that comfortable food grain stocks, improving terms of trade and softer global commodity prices are expected to cushion the economy against these risks.
On the external front, BofA Securities expects India's current account deficit to narrow to 1.2 per cent of GDP in FY27 due to lower oil prices, while the fiscal deficit is projected to remain at 4.5 per cent of GDP.
The report said supportive liquidity conditions and a stronger balance of payments position are likely to support credit growth.
It also noted that an improving macroeconomic environment will benefit Non-Banking Financial Companies (NBFCs), particularly in retail, vehicle finance and MSME lending, as stronger consumption and investment boost credit demand.
However, BofA Securities cautioned that the evolving inflation outlook and expected RBI rate hikes could keep funding costs elevated for some lenders. It said that liability management, pricing discipline and asset quality monitoring will remain important for NBFCs.
— ANI
Reader Comments
Good to see GDP growth forecast raised to 6.9%. But I'm a bit concerned about NBFCs—they've been the backbone of small business lending in tier-2 and tier-3 cities. If funding costs go up, it might hurt MSMEs the most. RBI needs to balance growth with inflation carefully. 🇮🇳
BofA's projection of rate hikes only from Dec 2026 seems optimistic. What if global oil prices spike again or the monsoon fails badly? Domestic inflation risks are real—just look at vegetable prices last year. RBI should keep a hawkish stance ready, not wait too long. Just my two paise. 😅
Interesting analysis from BofA. The shift from geopolitical to climate-driven inflation is a global trend now. India's CAD narrowing to 1.2% sounds good, but let's not forget that a weak rupee could offset some benefits from lower oil prices. Credit growth support from better liquidity is a positive though.
As a small business owner, I'm watching NBFC lending rates closely. The report says liability management will be important for them—that's corporate speak for "borrowing costs might rise." If RBI hikes in 2026, I hope they give adequate transition time. Rural economy needs stable credit, especially with monsoon uncertainty. 🙏
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