New Delhi [India], October 5 : The Reserve Bank of India is expected to keep the repo rate unchanged at its October policy meeting despite rising inflation risks, before beginning a rate-hike cycle in December that could deliver a cumulative 50-75 basis points of tightening, according to a report by Bank of Baroda (BoB). 
As per BoB, credit and deposit growth in India remains strong, with the gap narrowing sharply as FCNR(B) deposits rise. At the same time, India’s credit growth has also remained broad-based, led by industry and services, with infrastructure and export-oriented sectors outperforming within industrial lending.
As the Reserve Bank of India (RBI) began its Monetary Policy Committee (MPC) meeting on Monday, the lender expects “RBI to keep both the repo rate as well as the stance unchanged with a very cautious tone.” As per BoB, “the policy repo rate is expected at 5.25%,” and retain its neutral stance while maintaining a cautious tone.
It also noted that, since the RBI’s August policy, crude prices have surged 28 per cent amid renewed US-Iran tensions, the US Fed has raised rates by 25 basis points, Indian bond yields have hardened by 44 basis points, and domestic CPI inflation has risen to 4.8 per cent. 
At the same time, the lender noted that “GDP forecast is expected to be revised higher” largely on the basis of stellar growth performance in Q1. Inflation forecast could be revised marginally higher, tracking current trends in prices of key commodities.
BoB based its outlook on strong GDP growth, rising inflation, festive demand and higher bond yields. It highlighted that India’s GDP growth surpassed expectations in the first quarter of FY27, rising 7.8 per cent against the RBI’s estimate of 7 per cent, supported by stronger investment and consumption. 
It noted that India’s growth momentum remained resilient in the second quarter despite global volatility, with manufacturing PMI rising to 55.1 in September from 52.8 in August and services PMI increasing to 55.8 from 54.1. 
“We expect GDP growth in the range of 7-7.2% in FY27. This gives RBI room to keep rates steady at the present juncture,” it said. 
At the same time, it noted, inflation rose to 4.8 per cent but remains within the RBI’s 2-6 per cent target range, with pressures largely driven by food while core inflation remains contained. As per BoB, the current level does not warrant an immediate rate hike, allowing the RBI to wait for more data.
Also, a rate hike, especially ahead of the festive season, which is the peak spending period, could slow the momentum in demand and affect growth prospects. 
Separately, it noted there has been a “huge liquidity surplus” in the system, hence, the transmission of a rate hike could become challenging.
Furthermore, India’s 10-year bond yield has risen 44 basis points since the last RBI policy to a 29-month high of 7.12 per cent, driven by higher oil prices, FPI outflows and rate-hike expectations. Thus, as per BoB, keeping rates unchanged could help soften yields.
“We expect the RBI is likely to hike rates only in Dec’26, with a cumulative 50-75bps rate hikes expected in this cycle,” it said.