RBI may deal an EMI shock; here is how much home and car loan EMIs could rise..

Amid rising inflation driven by surging crude oil prices, a shock for the common man has emerged. A report by a major Japanese brokerage firm suggests that India's central bank, the RBI, could hike loan EMI rates during the months of October and December. A cumulative increase of 0.50 percent could be seen across these two months. This implies that availing home loans, personal loans, and car loans could become significantly more expensive in the near future. Notably, the RBI has not altered policy rates for quite some time; prior to this, it had reduced rates by approximately 1.25 percent. Let us take a look at the figures presented by the Japanese firm...

**Potential 0.50% Hike in Repo Rate**
According to the Japanese brokerage firm Nomura, the Reserve Bank of India (RBI) is likely to raise interest rates by 25 basis points during its policy review meetings in October and December, bringing the terminal rate to 5.75 percent. The "terminal rate" refers to the peak or trough target rate anticipated during a tightening or easing cycle, respectively. The likelihood of further rate hikes is expected to diminish from February 2027 onwards, driven by projected declines in consumer spending and expectations of moderate inflation in the coming year. The RBI is expected to raise the terminal rate to 5.75 percent through two successive 25-basis-point hikes in October and December, although there remains a risk that the hike might occur only once.

 Inflation May Ease Next Year
In a report released on Tuesday, global financial services group Nomura stated that the likelihood of rate hikes is expected to diminish from February 2027, driven by a projected slowdown in consumption and an anticipated easing of inflation next year. Regarding inflation, Nomura expects it to rise over the next six months due to food and energy prices but notes that it will return to target levels as demand pressures from these sectors subside. The firm projects CPI inflation to rise from 4.8% (year-on-year) in August to 6.3% in the fourth quarter (Q4) and approximately 5.3% in the first half (H1) of 2027, before dropping below 4% in the second half (H2) of 2027. "On average, we estimate CPI inflation at 5.2% (year-on-year) for FY27 and 4% for FY28," the report stated, adding that core CPI inflation is projected to be 4.3% in FY27 and 4% in FY28.

Rising Food Inflation This Year
Nomura identified food inflation as the "biggest risk to the inflation outlook in the near term." According to the report, food prices are rising this year due to deficient rainfall and poor sowing of the Kharif (summer) crop. While government policy measures—such as stock limits on sugar and sales of onions at subsidized rates—may help temper price increases, the firm noted that low crop output suggests the risk of rising food prices persists for now. 

**Outlook on Growth**
Regarding growth, Nomura noted that India's real GDP growth stood at 7.8 percent (year-on-year) in the second quarter—surprising everyone—while credit growth remained in the double digits (19.1 percent year-on-year in August). However, the firm stated, "We see some emerging risks to the economic outlook." The report indicated that deficient rainfall is likely to reduce the output of both *Kharif* (summer) and *Rabi* (winter) crops, which will impact rural consumption. It further added that rising food prices could erode real disposable income and dampen demand for non-essential goods.

**Impact of AI on the Services Sector**
The brokerage firm also highlighted the impact of AI development on India's services sector. India's software-services surplus stood at $51.4 billion in the second quarter, down from a peak of $53 billion in the fourth quarter of the previous fiscal year. This surplus contracted by 2.9 percent quarter-on-quarter in the first quarter and by 0.1 percent in the second quarter. Nomura observed that, given weak portfolio flows, reduced FCNR(B) inflows, and high energy prices, financing India's widening current account deficit could prove challenging.

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