RBI Rate Hike Signals More Tightening, Says HDFC Bank Economist

AHMEDABAD : The Reserve Bank of India’s latest rate hike could mark the start of a prolonged tightening cycle, with further increases of 50–75 basis points possible over the coming months, according to Sakshi Gupta, Principal Economist at HDFC Bank.

Gupta said the RBI’s decision came as domestic inflation risks increased even as economic growth remained resilient. She noted that the central bank’s shift towards “calibrated tightening” indicated that the latest hike was unlikely to be a one-time move.

“The RBI’s tone and revised macro forecast tilted on the hawkish side,” Gupta said, pointing to the growth forecast being raised by 40 basis points to 7.1% for FY27, while the inflation forecast was revised upwards to 5.2%.

She expects inflation to average 5.4% in FY27, with inflation projected at 6.3% in the current quarter. Gupta retained her 7.1% growth forecast for the financial year.

She said the extent of future rate hikes would depend partly on the duration of the West Asia conflict and elevated crude oil prices.

On liquidity, Gupta said the RBI had refrained from announcing fresh measures and could continue using sell/buy swaps, VRRRs and, if required, OMOs to absorb surplus liquidity.

“Higher currency in circulation is also likely to reduce liquidity balances” during the festive season, she said.

Gupta expects the bond yield curve to flatten as tighter rates and liquidity normalisation push up short-term rates.