MPC minutes: Two more interest rate hikes on cards, maybe even a third

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The RBI increased the repo rate for the first time in four years by 25-basis-point to 5.50% in October.

Market participants and economists now expect a 25-bps increase in the December and February reviews. A further 25-bps increase in April isn't ruled out if crude oil prices remain persistently above $100. One basis point is a hundredth of a percentage point.

"After the minutes were released, we think the probability of a consecutive hike in December has increased. Our terminal rate forecast is now at 6% for this hiking cycle and we expect the cycle to be rather shallow," Barclays said in a note.

The Reserve Bank of India (RBI) had projected crude oil prices at $95 per barrel for H2FY27, from its previous expectations of $85 per barrel, while actual prices have increased to $105-110 levels. An increase in crude oil prices stokes inflation concerns, as India is a net importer of the commodity.

To be sure, due to the base effect, the increase in prices might seem softer over the next fiscal.

Some expect crude oil prices to cool, while others anticipate softer retail inflation in FY28 and relatively contained second-round price effects, which could limit the need for further tightening.

"We expect core CPI at 4.2%, lower than the 4.4% of the monetary policy committee, which implies that second-round price effects or demand-side price pressures are still relatively contained," according to Barclays.

State Bank of India said that peak inflation in November would be below 6.5% and it expects a "50-bps rate hike in December either through a plain vanilla 50-bps repo rate hike or an exotic 50-bps rate hike with a 25-bps repo rate and a 25-bps asymmetric widening of LAF corridor."