Indian Rupee: RBI seen hiking as inflation risks build – UOB

UOB’s Jester Koh expects the Reserve Bank of India (RBI) to deliver two consecutive 25bps rate hikes starting from the December 2026 Monetary Policy Committee (MPC) meeting, as headline inflation is projected to breach the upper end of the RBI’s 2–6% band by 3QFY27. Koh highlights strengthening food inflation, rising household inflation expectations and hawkish August RBI minutes as key drivers of tighter policy expectations.

RBI tightening outlook strengthens

"We now expect the RBI to deliver two back-to-back 25bps rate hikes starting from the Dec 2026 MPC meeting."

"Under our baseline inflation projections, headline inflation could breach the upper bound of the RBI's 2-6% tolerance band by 3QFY27 (Oct-Dec 2026) and remain above 6% until early 1QFY28, implying negative (ex post) real rates that may necessitate tighter monetary conditions to constrain demand-driven inflationary pressures."

"While price pressures remain highly concentrated in the food component for now, in our view the RBI cannot entirely look past this, given the relatively high frequency of food consumption and its potential influence on households' inflation expectations, which have strengthened meaningfully since the start of 2026."

"Furthermore, minutes of the Aug RBI MPC meeting tilted hawkish in our assessment, with several MPC members foreshadowing rate hikes on the horizon by mentioning that they are adopting a wait-and-see approach before recalibrating the policy rate."