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The Reserve Bank of India (RBI) may hike the policy interest rate by 0.25 percentage points in both the October and December monetary policy reviews. Analysts suggest that the central bank could raise the repo rate—its key policy rate—amidst concerns that retail inflation might rise further and remain elevated. According to analysts, the RBI might hike rates due to factors such as crude oil prices returning to the $100-per-barrel mark amidst renewed tensions in West Asia, as well as concerns regarding El Niño and the possibility of it intensifying. Furthermore, the narrowing interest rate differential between India and the US—driven by the US Federal Reserve's move towards raising rates—and robust economic growth could also prompt the RBI to increase policy rates. This forecast follows the release of retail inflation data, which showed that the Consumer Price Index (CPI)-based retail inflation rose to 4.82% in August, up from 4.45% in July.

**Forecasts by Deutsche Bank and SBI**
Analysts at the German brokerage firm Deutsche Bank stated in a report that crude oil prices have once again crossed the $100-per-barrel mark. Given this, and the fact that economic growth remains strong despite the crisis in West Asia, the time has come for the RBI to initiate a hike in policy rates. The brokerage firm noted that it has advanced its forecast for an interest rate hike from December to October. This revision follows the minutes of the August monetary policy review meeting, which highlighted a hawkish stance, rising inflation, robust economic growth, and the likelihood of an interest rate hike by the US Federal Reserve. Meanwhile, economists at the country's largest lender, the State Bank of India (SBI), projected that retail inflation could breach the 6.5% mark and is likely to drop below 6% only by early 2027. In this context, it would be appropriate to hike the policy repo rate by 0.25% in both the October and December meetings of the Monetary Policy Committee (MPC) and subsequently pause further hikes.

**HSBC Also Concurs**
Foreign brokerage HSBC has also projected two policy rate hikes—one in October and another in December. It anticipates that inflation could remain above 5% for nine consecutive months. Deutsche Bank believes the Reserve Bank will pause rate hikes in February 2027 before raising rates again during the April and June 2027 reviews. This could bring the total increase in the current rate-hike cycle to 1%. This cycle is expected to commence in October. Notably, the Reserve Bank has not altered the policy rate for over a year; the repo rate—the rate at which the RBI lends short-term funds to banks for immediate needs—currently stands at 5.25%.

**The Fed May Also Hike Rates**
Deutsche Bank noted that the statement following the previous monetary policy review had a dovish tone, leading to expectations that rate hikes would begin in December. However, given the hawkish stance revealed in the minutes of the six-member MPC meeting and the potential for rate hikes by the US Federal Reserve, the bank now projects a rate hike in October. According to the brokerage, the US Federal Reserve could raise its key interest rate by 0.25% at each of its meetings scheduled for September, December, and the end of March. It emphasized the importance of the interest rate differential between India and other nations in maintaining capital flows. Some central banks in Asia have already raised interest rates.

Deutsche Bank stated that the Reserve Bank's challenge is shifting from merely addressing supply-side inflation shocks to restoring the credibility of real interest rates in a global environment where monetary policies are tightening. The brokerage firm stated that the next step following the announcement of open market operations (purchase of government securities) to withdraw liquidity would be an increase in interest rates.

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