October rate hike likely at 25 bps, September inflation could touch 5.5 pc: Report
New Delhi, Oct 6
Reserve Bank of India is expected to implement a 25 basis‑point repo rate hike in October to 5.5 per cent, a report has said, adding that about Rs 6 trillion of liquidity needs to be withdrawn from the banking system over the next few months.
The report from HSBC Global Investment Research said inflation is expected to rise from 4.8 per cent in August to about 5.5 per cent in September and could average just over 6 per cent in the fourth quarter of 2026.
Out of Rs 6 trillion excess liquidity, currency in circulation could absorb roughly Rs 2 trillion of that need, with the remainder to be managed through existing instruments such as open market operation sales, foreign‑exchange spot sales, FX swaps and variable rate reverse repos.
The report said the reduction in liquidity is likely to be gradual unless blunt tools such as cash reserve ratio hikes are used.
"There has been a sequential rise in core inflation, led particularly by service inflation, which had been the most stubborn to rise thus far. We forecast inflation to average over 5 per cent for the next 12 months," the report noted.
It highlighted an uncomfortable external backdrop, noting oil prices trending above $100 a barrel and revised its 2027 oil forecast by $20 a barrel to $85. Elevated oil prices coupled with higher global bond yields and a firmer dollar, is typically unfavourable for capital inflows into emerging markets and has coincided with recent outflows.
The report also underlined the remarkable resilience in India's economy, driven increasingly by goods exports. It cited a 12 per cent month‑on‑month seasonally adjusted jump in exports to the UK one month after the UK‑India free trade agreement took effect.
"High-tech exports are on the rise, but mid-tech exports could rise too, especially once FTAs are made operational," the report noted.
— IANS
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