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The Reserve Bank of India (RBI) could raise interest rates even before its next scheduled monetary policy meeting in December, according to a Union Bank of India research report, as rising inflation and pressure on the rupee increase the possibility of further monetary tightening.
The report also indicated that the central bank could raise interest rates by 50 basis points at its December policy meeting, following the 25-basis-point hike announced earlier this month. "We cannot rule out the probability of a 50 bps rate hike in Dec'26 meet, with possibility of an inter-meeting hike, given that RBI Governor's signalling that monetary policy may be used to defend Rupee," the report said. An inter-meeting rate hike would mean the RBI taking action outside its scheduled monetary policy meetings, highlighting the possibility of an earlier response if inflation and currency pressures persist. The warning comes as India's wholesale inflation surged to 11.39 per cent in September from 9.92 per cent in August, exceeding Union Bank's forecast of 10.60 per cent and the market estimate of 10.18 per cent. The report said the increase was largely driven by rising prices of manufactured products, alongside higher food and fuel inflation. Core wholesale inflation, excluding food and fuel, rose to 9.69 per cent in September from 8.56 per cent in August, while manufactured products inflation accelerated to 9.78 per cent from 8.04 per cent. Inflation remained elevated across several industries, including basic metals at 16.96 per cent, chemicals at 16.74 per cent, textiles at 13.85 per cent and electrical equipment at 11.93 per cent. The broad-based increase in prices suggests that businesses are facing higher production costs, adding to inflationary pressures across the economy. Fuel inflation also remained high at 25.87 per cent in September, as global crude oil prices rose sharply amid the US-Iran conflict and related supply disruptions. Looking ahead, the report warned that wholesale inflation could remain elevated in the coming months. "WPI is likely to remain elevated and in double digits in the near term, supported by sustained pressures from fuel and manufactured products, even as the trajectory of food prices will depend on the progress of kharif harvest," it said. Union Bank expects wholesale inflation to average around 10.5 per cent in FY27, assuming crude oil prices average USD 90-95 per barrel. The report also warned of further inflation risks if crude oil prices remain above USD 100 per barrel or adverse weather conditions affect the rabi crop. The assessment suggests that persistent price pressures could leave the RBI facing difficult decisions on interest rates, with implications for borrowing costs, business investment and economic growth. (ANI)
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