India's central bank widely expected to raise rates, MUFG bucks trend

Crude oil acts as the unifying factor across all projections. Since India relies heavily on oil imports, crude staying above $100 a barrel stokes both inflation and a wider trade gap, while climbing US yields drive capital from emerging markets and put the rupee under pressure. An increase today would come as no surprise, so the focus will be on what comes next: hints of a follow-up move in December would bolster the rupee and lift short-dated government bond yields. A hold, as MUFG projects, would catch markets off guard and could push the rupee lower in the short run, though the RBI's sizeable reserves provide a cushion against any steep drop. Any move to mop up excess liquidity would qualify as tightening on its own, regardless of what happens to the repo rate.

The discussion around the Reserve Bank of India has shifted from whether policy will tighten to when, with a majority of economists seeing action today and MUFG pointing to December.

• The RBI announces its policy decision today at 10:00 am India time (04:30 GMT, 00:30 ET)
• A Reuters survey showed 35 of 61 economists expect a 25bp increase to 5.50%, which would mark the first rise since February 2023
• Nomura projects hikes both today and in December, lifting the repo rate to 5.75%
• MUFG stands apart, expecting a hold at 5.25% today but forecasting 25bp increases in December and February
• Rising oil prices, spreading inflation, ample liquidity and rupee pressure from higher US yields strengthen the argument for tightening

The RBI is set to deliver its first rate increase in over three years when the decision is announced today, though opinions differ on the timing, with MUFG breaking from the pack by forecasting no change.

The six-member Monetary Policy Committee will reveal its decision at 10:00 am India time (04:30 GMT, 00:30 ET). The repo rate has remained at 5.25% for four consecutive meetings, after 125 basis points of reductions during 2025.

A Reuters poll dated 28 September indicated that 35 out of 61 economists forecast a 25 basis point hike to 5.50% today, which would be the RBI's first tightening since February 2023. More than half of those offering a longer-term view anticipate at least one more increase by December. Nomura is among the institutions expecting consecutive moves, with hikes today and in December bringing the repo rate to 5.75%. Analysts at India's largest lender stated that the balance of risks had shifted decisively in favour of a rate rise, pointing to broadening inflation, a deteriorating global environment and renewed risk repricing in financial markets.

MUFG diverges on timing. It expects the RBI to stand pat today but views the pause as brief, predicting 25 basis point increases in December and February, with a possible total of 75 basis points over the cycle. The bank points to higher crude prices, weather-related uncertainties, strong domestic demand and ample banking system liquidity as factors that will keep price pressures elevated into 2027. It also notes that rising US yields are straining the rupee, though the RBI holds sufficient reserves to support the currency. MUFG added that even its full forecast implies less tightening than what rates markets are currently pricing in.

The disagreement centres on timing, not direction. Both sides cite the same triggers: crude above $100 a barrel driven by the Middle East conflict, inflation that has risen above the RBI's 4% target, and a global setting where the US, UK and Japan central banks have already raised rates.

Apart from the main decision, investors will look for any shift in the RBI's neutral stance, updates to its inflation and growth forecasts, remarks on the rupee, and potential actions to absorb surplus liquidity. The next policy meeting wraps up on 4 December.