Peak repo rate pegged lower at 6%, December hike on

Mumbai: The rate-hike cycle is now expected to be shallower than previously anticipated, provided relatively softer crude oil prices and an easing of geopolitical tensions in West Asia persist into 2027, say economists.

Most economists expect the terminal, or peak, repo rate at 6%, reversing earlier projections of 6.25%. While some still see the possibility of the policy rate rising to 6.25%, they consider it a low-probability outcome that would depend entirely on incoming data.

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A rate hike in December, however, is widely expected, particularly after October retail inflation accelerated to 6.09%, breaching the Reserve Bank of India‘s 6% upper tolerance limit for the first time in two years.

The RBI is legally required to maintain the headline inflation between 2% and 6%.

The Monetary Policy Committee (MPC) is scheduled to announce its rate decision on December 4. The committee raised the policy rate by 25 basis points to 5.50% at its last meeting in October, citing inflationary risks due to global uncertainties and deficient rains.
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“The December 25-bps hike to be followed by a more data-dependent policy approach. This also leaves room for a downward revision in terminal-rate expectations,” the report said.

Indranil Pan, chief economist at Yes Bank said, “A hike in April remains a possibility, but the probability of the same may have weakened due to cooling global crude prices and steadying rupee.”

Brent prices fell sharply in early November as markets responded to expectations that the US would avoid another major military offensive after Democrats took control of both houses in the US.

The recent correction in crude oil prices has tempered expectations of a relatively aggressive hiking cycle, with markets scaling back bets on multiple rate increases in the coming MPC meetings.

Domestic inflationary risks also remain, due to the potential impact of El Nino, which could push up food prices. “Inflation has mostly peaked and while upcoming CPI prints may soften, they will continue to stay elevated, paving the way for measured hikes by the MPC. We expect the hiking cycle to be rather shallow,” Barclays chief economist Aastha Gudwani said.