New Delhi, Sep 4: The Reserve Bank of India (RBI) could shift towards tighter monetary policy in the second half of the financial year 2026-27, with the repo rate potentially rising to 5.75-6 per cent, according to an assessment by Union Bank of India.
The expected rate hike cycle could begin as early as December, as the central bank weighs strong economic growth, excess liquidity in the banking system and emerging inflation risks.
The RBI is currently maintaining the repo rate at 5.25 per cent, following its latest monetary policy decision.
The outlook marks a possible change from the recent easing phase, with policymakers expected to focus more closely on keeping inflation under control while ensuring that surplus liquidity does not create additional price pressures.
India’s economy has continued to show resilience, with GDP growth reaching 7.8 per cent in the April-June quarter of FY27. The stronger-than-expected growth has led several economists to raise their full-year growth expectations.
At the same time, the banking system is facing a substantial liquidity surplus following large foreign-currency inflows. The surplus has recently approached Rs 9.7 lakh crore, prompting the RBI to explore measures to absorb excess liquidity.
A higher repo rate would increase the cost of funds for banks and could eventually push up borrowing costs for businesses and consumers. On the other hand, tighter policy could help contain inflation and prevent excess liquidity from adding to price pressures.
The final direction of monetary policy will depend on how inflation, growth, liquidity and global economic conditions evolve in the coming months. The RBI is also closely monitoring external risks, including elevated crude oil prices and pressure on the rupee.