RBI Repo Rate: Rate May Rise to 6% by April 2027 Amid Excess Liquidity, Inflation

The repo rate is likely to be hiked to 6 per cent by April 2027 to find a more stable policy footing as excess liquidity skews markets, a report said on Friday. The report from Bandhan AMC said India’s fixed‑income investors face a complex environment amidst rising inflationary pressures that argue for faster policy normalisation and a surge of rupee liquidity from foreign currency inflows that has pushed overnight rates well below policy rates. The reconciliation will be through the pace at which RBI undertakes normalisation, the report said.

It could range from "re-fixing overnight rate anchor to policy rates, contemplating how to absorb the medium-term excess liquidity, even as the MPC contemplates the pace of repo rate normalisation given rising inflation pressures." There is lesser luxury with respect to pace of liquidity normalisation given the severe distortions in play currently, the firm said. Market expects some combination of temporary and permanent measures including FX swaps, MSS bonds, OMO sales, and possible CRR hike, it added.

The report noted recent escalation in energy prices on the back of renewed Middle East tensions, and a broad-based pressure across commodities, including agricultural commodities. Monsoons are uneven, GDP growth has been strong, and credit is growing at around 18 per cent in India. "Thus conditions, both global and local, point to rising inflationary pressures, even as the data up to now has been a source of comfort for RBI," the report said. The perceived greater hawkishness of the last policy minutes does highlight the rising watchfulness of MPC members, the report said, assuming that members will be getting even less comfortable with the current policy positioning with global price pressures getting worsening recently.

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