RBI Repo Rate – Bank of America Securities has raised its forecast for interest-rate increases in India, projecting that the Reserve Bank of India could raise the policy rate by as much as 100 basis points by the first half of 2027. The brokerage has also moved forward its expected timing for the first increase from December to October. Its latest India Viewpoint report estimates a possible 25-basis-point hike at the RBI’s October 7 monetary policy meeting, followed by another 75 basis points of increases, potentially taking the terminal rate to 6.25 percent.
BofA Doubles Its Earlier Rate-Hike Forecast
The latest projection represents a significant change from BofA Securities’ earlier estimate. The brokerage had previously expected a cumulative 50-basis-point increase, but it has now doubled that forecast to 100 basis points.
According to the report, the immediate focus is on the RBI’s October policy meeting. A 25-basis-point increase at that meeting would be the first step in the brokerage’s revised forecast, with additional increases expected later if the economic conditions outlined in its assessment continue.
The projection remains a forecast rather than a confirmed policy decision. The RBI’s Monetary Policy Committee will determine the policy rate based on its assessment of inflation, growth and other economic indicators.
What a 1 Percentage Point Hike Could Mean for Borrowers
A 100-basis-point increase is equivalent to a one-percentage-point rise in the policy rate. If banks pass higher funding costs through to customers, borrowers with floating-rate loans could face higher interest rates.
Home loans are likely to be particularly sensitive because of their long repayment periods. For example, a ₹50 lakh home loan for 20 years at an 8 percent interest rate has an illustrative EMI of about ₹41,822. If the rate rises to 9 percent, the EMI would increase to roughly ₹44,986, an increase of around ₹3,164 per month.
The actual impact can differ depending on the lender, loan structure, benchmark and reset mechanism. In some cases, the borrower’s EMI may rise, while in others the repayment period could become longer.
Car and Personal Loans Could Also Be Affected
Higher lending rates can also increase the cost of new car loans and personal loans. Existing borrowers with floating-rate arrangements may see changes when their interest rate is reset.
However, a 1 percentage point increase in the RBI policy rate does not automatically mean that every borrower will face a 1 percentage point increase in their loan rate. Banks decide their lending rates according to their respective benchmarks, funding costs and product structures.
Deposit Rates Could Benefit From Higher Rates
The impact would not necessarily be negative for everyone. Savers and fixed-deposit investors could potentially benefit if banks respond to higher policy rates by increasing deposit rates.
Higher rates could make new FDs more attractive, although banks are not required to raise deposit rates by the same amount as any RBI policy increase. The timing and extent of changes would depend on individual banks and market conditions.
Inflation and Economic Growth Remain Important
Higher interest rates generally make borrowing more expensive, which can moderate consumer spending and business investment. That can reduce demand pressures and potentially help contain inflation over time.
At the same time, tighter financial conditions can weigh on economic activity. BofA’s forecast suggests that rates could rise beyond 100 basis points if real GDP growth remains around 7 percent while headline inflation stays near 5.5 percent. Under that scenario, front-end rates could move above 6.5 percent.
Growth Slowdown Could Change the Outlook
The brokerage also identifies a scenario in which the projected rate increases could be smaller. If economic growth slows materially and moves below 7 percent toward around 6 percent on a forward-looking basis, the case for additional monetary tightening could weaken.
The final path will therefore depend on incoming economic data and the RBI’s assessment of inflation and growth. For borrowers and savers, the key point is that BofA’s 100-basis-point projection is an external forecast, not a commitment by the central bank.