The Reserve Bank of India (RBI) may increase interest rates before its scheduled December monetary policy meeting as rising inflation and pressure on the Indian rupee raise concerns about the country’s economic outlook, according to a research report by Union Bank of India.
The report also said a 50-basis-point rate hike in December 2026 cannot be ruled out, following the 25-basis-point increase announced earlier in October. It noted that the RBI could take action between scheduled meetings if inflationary pressures and currency concerns persist.
The possibility of an early rate hike follows signals from the RBI Governor that monetary policy could be used to support the rupee.
Wholesale Inflation Rises to 11.39% in September
India’s wholesale price inflation increased to 11.39% in September, compared with 9.92% in August. The latest figure was higher than Union Bank’s forecast of 10.60% and the market estimate of 10.18%.
The increase was driven by higher prices across several sectors, particularly manufactured goods, along with rising food and fuel costs.
Core wholesale inflation, which excludes food and fuel, climbed to 9.69% in September from 8.56% in August. Inflation in manufactured products also accelerated, rising to 9.78% from 8.04% over the same period.
Several industrial categories recorded significant price increases. Basic metals inflation reached 16.96%, chemicals stood at 16.74%, textiles rose to 13.85%, and electrical equipment inflation touched 11.93%.
The widespread rise in prices indicates growing cost pressures for businesses across multiple industries.
Fuel Prices Add to Inflationary Pressure
Fuel inflation remained elevated at 25.87% in September. The report attributed the pressure partly to a sharp increase in global crude oil prices amid the US-Iran conflict and related supply disruptions.
Higher oil prices could continue to influence production and transportation costs, adding to the broader inflation challenge.
RBI Faces Difficult Decisions Ahead
Union Bank expects wholesale inflation to remain elevated and stay in double digits in the near term, supported by continued pressure from fuel and manufactured products. Food price trends, meanwhile, will depend partly on the progress of the kharif harvest.
The bank projects wholesale inflation to average around 10.5% in FY27, assuming crude oil prices average between USD 90 and USD 95 per barrel.
However, the report warned that inflation risks could increase further if crude oil prices remain above USD 100 per barrel or unfavourable weather affects the rabi crop.
Persistent inflation and pressure on the rupee could place the RBI in a difficult position as it considers its next monetary policy decisions. Any further increase in interest rates could also affect borrowing costs, business investment and economic growth.
