RBI Could Raise Interest Rates Twice in 2026 Amid Sticky Inflation

The Reserve Bank of India (RBI) could raise interest rates at both its October and December monetary policy meetings as inflationary pressures build, according to Rob Subbaraman, Head of Global Macro Research at global financial services firm Nomura.

Subbaraman expects India’s economic growth to remain resilient, with Nomura projecting 7 per cent GDP growth for FY27. At the same time, he expects inflation to cross 6 per cent in the coming months, according to NDTV Profit.

He said the combination of resilient growth and persistent inflation could influence the RBI’s monetary policy decisions in the months ahead.

Subbaraman also highlighted India’s potential to attract greater global investment and strengthen its position in global value chains, particularly by expanding higher-end manufacturing.

While India offers significant opportunities across sectors, he cautioned that some areas could lag if the current artificial intelligence investment boom in the US and Northeast Asia remains particularly strong.

India could also see increased capital inflows, with foreign currency non-resident bank deposits (FCNR-B) recording stronger-than-expected flows and the possibility of a robust balance-of-payments surplus, he said.

Global markets are also closely monitoring diplomatic developments during the United Nations General Assembly and the expected meeting between US President Donald Trump and Chinese President Xi Jinping this week.

Turning to US monetary policy, Subbaraman said he expects at least one more rate increase from the US Federal Reserve this year, most likely in December. He added that further hikes could be considered if inflation remains elevated.

The latest projections from the Federal Open Market Committee (FOMC) indicate a broadly hawkish outlook. Of the 18 policymakers, 12 projected one additional rate hike this year, four expected two more increases, while only two anticipated no further increase.

The Federal Reserve last week raised its policy rate by 25 basis points to 3.75-4 per cent.

Subbaraman said markets were hoping that diplomatic efforts could help ease global tensions and US-China trade restrictions, potentially reducing energy costs and long-term bond yields.

He also pointed to the influence of energy prices on the global economic outlook, saying Iran continues to retain leverage because elevated energy prices can put pressure on the US economy.

He warned that higher fuel costs are also weighing on downstream oil businesses, with US gasoline prices approaching $4.50 and diesel prices reaching record levels near $6.50.