India's headline inflation likely to average 5.6 pc in FY27, RBI may raise rates by 50 bps
New Delhi, June 15
India's headline inflation is likely to average 5.6 per cent in fiscal 2027 and a bigger rate hike than 50 bps is not to be expected, a report said on Monday.
As energy and El Niño shocks push food and fuel prices higher, the Reserve Bank of India may only undertake a shallow rate hiking cycle with two rate hikes over Q3CY26 and Q4CY26, taking the repo rate to 5.75 per cent, the report from HSBC Global Investment Research said.
"We are not forecasting a bigger rate hike than 50 bps for now because we believe the RBI will look through part of the inflation increase as temporary," the report said.
The research firm had earlier given a forecast of CPI inflation to asymptote towards 4 per cent by March 2028.
The repo rate forecast assumes oil prices to average $95 per barrel in FY27 with a deal leading to a gradual reopening of the Strait of Hormuz around mid-June.
May consumer price index inflation rose to 3.9 per cent year‑on‑year, up from 3.5 per cent in April, with sequential momentum accelerating to 0.5 per cent month‑on‑month.
Non-food goods inflation (at 5.1 per cent YoY) is running much higher than services inflation (at 2.1 per cent YoY).
Food inflation picked up pace, with sequential momentum accelerating to 0.6 per cent MoM in May from 0.3 per cent in April. Instances of heatwaves in several parts of India pushed the price of vegetables higher, particularly that of tomato, chillies, cabbage. Prices of fruits, edible oil and spices, too, saw a notable rise in sequential terms.
The report flagged that average temperature is rising with global warming, crossing thresholds, and mattering more for food inflation than even rains particularly in El Niño years.
— IANS
Reader Comments
Finally some clarity from HSBC! The prediction of repo rate at 5.75% by end of FY27 seems reasonable. But I'm worried about the long-term trend – food inflation is sticky because of climate change, not just monsoons. The report mentions "temperature crossing thresholds" – that's a huge wake-up call for Indian agriculture. We need more investment in cold storage and climate-resilient crops. Rate hikes alone won't solve the problem. Hope the government takes note. 🌾🌍
I'm a small business owner in Pune, and these inflation figures are scary. Non-food goods inflation at 5.1%? That's directly hitting my raw material costs. And if RBI hikes rates, my working capital loan will become costlier. The report says "shallow hiking cycle" – but for us, even 25 bps matters. Also, oil at $95/barrel? That's insane. Let's hope the Strait of Hormuz reopening happens smoothly, otherwise we're in for a tough ride. Government should focus on reducing GST on essentials to give some relief. 🛢️💸
Interesting analysis from HSBC. The 50 bps hike seems conservative compared to what the US Fed has done. But India's inflation dynamics are different – food and fuel dominate, not services. The real concern is the structural trend: global warming is making food inflation more persistent. If this becomes the new normal, how will the RBI manage? They can't keep hiking rates forever without hurting growth. Perhaps India needs to rethink its inflation targeting framework in the context of climate shocks. Just a thought.
As a home buyer waiting to take a loan, this news is giving me sleepless nights! 🥴 If repo rate goes to 5.75%, banks will increase loan rates to
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