New Delhi, October 6 (Daily Kiran) : The Reserve Bank of India (RBI) is likely to raise interest rates by 0.25% to 5.5% during its monetary policy committee meeting in October. A report indicates that the banking system will need to remove approximately ₹6 lakh crore in liquidity over the coming months.
According to HSBC Global Investment Research, inflation is expected to rise from 4.8% in August to around 5.5% in September, with an average forecast of slightly over 6% in the fourth quarter of 2026.
Of the ₹6 lakh crore in excess liquidity, around ₹2 lakh crore can be managed through currency currently in circulation. The remainder will be addressed through existing methods such as open market operation sales, foreign exchange spot sales, FX swaps, and variable rate reverse repos.
The report suggests that any reduction in cash will likely occur gradually unless stringent measures, such as increasing the cash reserve ratio (CRR), are implemented.
It also highlights a persistent rise in core inflation, primarily driven by increases in the service sector. The report anticipates that inflation will remain above 5% on average over the next 12 months.
External conditions are concerning, with oil prices currently exceeding $100 per barrel. The forecast for oil prices in 2027 has been raised by $20 to $85 per barrel. High oil prices, along with rising global bond yields and a strengthening dollar, typically deter capital inflows to emerging markets, which has been evident in recent capital outflows from India.
Despite these challenges, the report emphasizes the robust strength of India’s economy, noting a 12% month-on-month increase in exports to the UK following the implementation of the UK-India Free Trade Agreement.
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