Banks tone down rate-hike bets as RBI sounds dovish on prices

Yet, most others have more or less stood by their earlier forecasts.

Yes Bank, which had earlier expected hikes in October or December, now believes the Reserve Bank of India (RBI) will defer raising rates for as long as possible.

SBI, meanwhile, said the latest policy pushes any rate hikes beyond FY27. MUFG Bank, which had earlier pencilled in a hike in October, has now pushed back its rate-hike forecast to December and expects a 50-basis-point hike in FY27. The bank had earlier forecast an increase of half a percentage point. "We still see policy rates moving higher from here with domestic growth remaining quite robust, credit growth accelerating and as the lagged impact from earlier oil price increases visible," Michael Wan of MUFG Bank said in a note.

Longer pause

HSBC and Kotak Mahindra Bank continue to expect a cumulative 50-basis-point hike, while Bank of Baroda and HDFC Bank still see at least one rate increase later this fiscal year to prevent real interest rates from turning negative.

Bank of Baroda said it continues to expect a rate hike later this fiscal year, arguing that if the RBI keeps rates unchanged and inflation rises above 5.2% in the later quarters, the real policy rate, or the difference between the repo rate and inflation, would turn negative.

The RBI has projected Q4FY27 inflation at 5.5% in its August policy, up from 5.4% in its earlier projection.

For the full FY27, The Reserve Bank of India has projected inflation at 5%, down from 5.1% previously. In Q1FY28, inflation is expected at 5.3%. Inflation in India is highly sensitive to crude oil prices, given that the country is a net importer of the commodity.

The RBI has assumed an average crude oil price of $95 per barrel for FY27 in its inflation projections.

"With inflation averaging at 5.4% over the next 4 quarters, a 5.25% repo rate looks low. However, the inflation trajectory is underpinned largely by oil prices and if oil prices fall sharply, inflation risks will be tilted materially lower," said Indranil Pan, chief economist, Yes Bank.

(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today.

Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today.

Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price