New Delhi, August 6, 2026 (Yes Punjab News)
The Reserve Bank of India (RBI) may begin its next interest rate hike cycle in December 2026, earlier than previous expectations of April 2027, with a cumulative increase of 75 basis points likely to take the terminal policy rate to 6 per cent, according to a Morgan Stanley report.
The investment bank expects inflation to remain above 5 per cent until June 2027, driven by supply-side pressures and a rise in core consumer price inflation.
Morgan Stanley projected that core inflation, excluding jewellery, could move above 4 per cent from November 2026 and remain at that level or higher until December 2027. It also expects India’s economic growth to strengthen, reaching 7 per cent in financial year 2027-28.
The report said measures announced by the RBI in June to attract foreign currency inflows have helped mobilise around $36.7 billion through Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits so far. It expects additional inflows of around $70-80 billion, with a significant portion of FCNR(B) deposits likely to come in by September 2026.
Inflows related to External Commercial Borrowings (ECB) are expected to be more gradual as the scheme remains open until December 2026.
Morgan Stanley said these measures are expected to improve the quality and sustainability of capital inflows, potentially resulting in a Balance of Payments surplus of around $35-40 billion in FY2027.
The RBI’s Monetary Policy Committee, in its latest meeting, kept the policy rate unchanged at 5.25 per cent and maintained a neutral stance. The central bank marginally revised its FY27 GDP growth forecast to 6.7 per cent and projected headline CPI inflation at 5 per cent and core CPI inflation at 4.3 per cent.
Explaining the possibility of an earlier rate hike cycle, Morgan Stanley said high-frequency indicators suggest resilient domestic economic activity, strong underlying demand and limited impact from supply disruptions.
Consumption indicators have remained robust, with vehicle registrations recording double-digit year-on-year growth since October 2025 across passenger vehicles and two-wheelers. Passenger vehicle registrations averaged 26.3 per cent growth, while two-wheeler registrations grew 24.7 per cent during the period.
“Going forward, the consumption outlook remains well supported by upcoming festive and seasonal demand, while rising investment activity is likely to support a broadening capex cycle,” the report said.
FOLLOW NOW
