The Reserve Bank of India (RBI) is likely to raise the repo rate twice by as much as 50 basis points by the end of December 2026 in line with global tightening cycle and excess liquidity in the banking system.

Market participants expect the Monetary Policy Committee (MPC) to deliver a 25 basis point rate hike in October 2026, followed by another 25 basis point increase in December, taking the benchmark repo rate to 6% by the end of the calendar year. One basis point is equal to one-hundredth of a percentage point.

The anticipated tightening comes amid concerns that inflation could exceed the RBI’s earlier projections, particularly if crude oil prices remain elevated.

“Incoming data suggests inflation is likely to overshoot those projections. If crude prices stay elevated in the $90-$110/barrel range, the pass-through from producer costs to final output prices is likely to accelerate,” Systematix Group said in a report.

“Against the prevailing 5.25% repo rate, it effectively implies a negative real policy rate — precisely the “cheap money” condition we had warned was unsustainable,” it added.

India’s retail inflation rose to 4.82% in August 2026 from 4.45% in July, while economists expect September inflation to approach the 5% mark.

A key factor influencing the RBI’s policy stance is the substantial liquidity surplus created by foreign currency inflows, particularly through the special non-resident deposit scheme. Analysts estimate that around $127 billion in FCNR(B) inflows have contributed significantly to the banking system’s liquidity surplus.

“FCNR(B) inflows have created a core liquidity surplus of ₹15 trillion. Excess liquidity can quickly become inflationary and can raise financial stability risks if banks become dependent on abundant liquidity,” HSBC said in a report.

The central bank has already deployed multiple liquidity management tools, including open market operations (OMOs) and variable rate reverse repo (VRRR) auctions, to absorb surplus funds from the banking system.

Analysts expect the RBI to intensify its absorption measures in the coming months. Through VRRR operations and other instruments, the central bank is expected to withdraw an additional ₹4 lakh crore of liquidity, over and above the nearly ₹2.5 lakh crore already absorbed.

The 20-month-high retail inflation of 4.8% in August 2026 has significantly increased the probability of an interest rate hike by the Reserve Bank of India’s Monetary Policy Committee (MPC) in its next meeting in October, according to economists.

Inflation in August as measured by the Consumer Price Index (CPI) was driven up by rising prices in the food category, which saw inflation quicken to 5.7%. Rising food and fuel prices also meant that inflation in the ‘restaurant and accommodation services’ category rose to 8.4%. 

According to economists at Emkay Global, there have been “material changes” to the global and domestic macroeconomic situation over the past few weeks that could lead the MPC to hike rates in October. 

These factors, it said, include the inflows of around $136 billion into India through the Foreign Currency Non-Resident Bank deposits, Brent crude oil prices rising above $100 a barrel once again, and the likely start of a global rate hiking cycle, with the European Central Bank hiking rates last week and the Bank of Japan and U.S. Federal Reserve likely to follow suit this week. 

“Amid this backdrop, the RBI’s October MPC meeting is a live one, with the odds of a rate hike now much higher than earlier,” the economists said in a report. 

DK Srivasatava, chief policy advisor at EY India, agreed with this assessment saying even a change in the RBI’s stance could take place.

“With CPI inflation coming close to 5%, the RBI may have to review its policy stance as well as policy rate in its next monetary policy review meeting in October 2026,” Mr. Srivastava said. 

He added, however, that the government has successfully limited the pass-through effect of fuel prices linked to global pressures as the domestic prices of fuels have remained stable.

Rajeev Sharan, head of research at Brickwork Ratings, said that there is also a risk of wholesale inflation — which came in at 9.9% in August 2026 — could spillover into retail prices. 

“The main risk is that high wholesale food and input costs eventually push up retail prices, alongside any rise in crude oil or fresh volatility in vegetable prices,” Mr. Sharan said. 

The central bank may prioritise closing its $137 billion open short forward dollar positions , with the FCNR(B) deposits received , according to experts and industry insiders.  

“The RBI has an outstanding short forward position of USD 137 Bn. If the RBI decides to not roll over the outstanding positions the INR liquidity will be absorbed from the banking system and RBI may use the excess FX reserves generated from the FCNR (B) scheme for delivering the dollars,” said Shashi Dhar, Chief General Manager of Treasury & Global Markets at Bank of Baroda. Short forward dollars are currency derivative contracts where RBI commits to sell dollars at a future date at a predetermined rate. This is used to defend the rupee without drawing down spot reserves immediately.

The central bank had already begun absorbing rupee liquidity to make sure call rates don’t fall below policy rate, he continued. Mr. Dhar further said that liquidity is at ₹6.5 lakh crore and RBI may absorb some of this to make sure short-term money supply does not feed into inflation and keep borrowing cost aligned with policy rate. This became important as the RBI signalled an expectation of higher inflation, in its monetary policy committee meeting minutes. 

Meanwhile, banks may be inclined to use this to “bolster their asset-side books and reduce their dependence on wholesale deposits  in the immediate term” Mr.Dhar said, adding that in the long term, they can use the excessive liquidity to fund credit growth.

One of the predominant reasons for introducing the FCNR(B) scheme was to arrest increasing foreign exchange rate. The rupee has become cheaper by 7.22% against the dollar, trading at around ₹96 against the greenback.

Economists however express their concerns regarding structural depreciation of the rupee even amid whopping FCNR(B) inflows.  “FCNR is one of the aspects that we tried to consider to create a solution to a problem that was a perfect storm but for us to become extremely secure with the way we manage our currency, we will need to get embedded in global value chains,” said Garima Kapoor , Deputy Head of Research and Economist at Elara Capital. “ In my view, FCNR or no FCNR, I do not think the rupee has a pathway for structural appreciation,” she said. 

India’s current account deficit (CAD) widened to $4.2 billion, or 0.5% of GDP, in the first quarter of 2026-27, compared with $3.4 billion, or 0.4% of GDP, in the year-ago period, according to preliminary data released by the Reserve Bank of India (RBI) on Tuesday.

The widening deficit was primarily driven by a higher merchandise trade gap, which increased to $86.1 billion in Q1 FY27 from $68.9 billion in the corresponding quarter of 2025-26.

However, stronger services earnings and higher remittance receipts provided some cushion. Net services receipts rose to $51.6 billion during the quarter from $47.9 billion a year earlier. Services exports recorded year-on-year growth across major segments, including computer services, other business services and transportation services.

The net outgo under the primary income account declined to $10.5 billion in Q1 FY27 from $13.3 billion in the year-ago quarter, mainly reflecting lower investment income payments, the RBI said.

Personal transfer receipts under the secondary income account, largely comprising remittances from Indians employed overseas, increased sharply to $42.9 billion from $33.2 billion a year earlier.

Capital flows

On the financial account, net foreign direct investment (FDI) inflows rose to $6.1 billion in Q1 FY27 from $5.2 billion in Q1 FY26.

Foreign portfolio investment (FPI), however, recorded a net outflow of $9.6 billion during the quarter, reversing a net inflow of $1.6 billion in the corresponding period last year.

Net inflows into non-resident deposits stood at $2.8 billion, lower than the $3.6 billion recorded in Q1 FY26. Net inflows under external commercial borrowings (ECBs) also moderated to $3.3 billion from $4.4 billion a year earlier.

India’s foreign exchange reserves declined by $8.1 billion on a balance-of-payments basis during Q1 FY27, compared with an accretion of $4.5 billion in the same quarter of the previous year, according to the RBI.

Indian economy has navigated well the external uncertainties and supply chain pressures, underpinned by healthy demand conditions and resilient performance of the industrial and services sectors, according to a Reserve Bank of India (RBI) bulletin.

“The global economy is dealing with uncertain economic environment, supply chain disruptions and fragmented trading relationships. Amidst these uncertainties, India remains among the fastest growing major economies across the globe and has been able to sustain the momentum in economic activities through June,” senior officials said in RBI Bulletin July edition, which was released on Wednesday.

Highlighting that both industrial and services sector indicators remained firm; they however said the farm sector is witnessing “uneven” southwest monsoon, but the impact on food inflation may be mitigated by comfortable foodgrain stocks,.

Reflecting strong economic activity and aggregate demand in June, they said Goods and Services Tax (GST) revenue growth picked up during the month, driven largely by a sharp increase in tax revenues. Dmestic demand was supported by a sharp pick-up in rural demand in June, they added.

“The momentum of external trade sustained as reflected in high growth in exports and imports in Q1:2026-27. This is likely to be strengthened by the recent operationalisation of the India-UK Comprehensive Economic and Trade Agreement and progress in other bilateral trade agreements,” they emphasised..

The external vulnerability indicators remained sound; they said, adding recovery of foreign investments in recent months shows a revival of confidence in the economy. “India’s external sector remains steady with improving outlook, aided by inflows of foreign investments,” they added.

Inflation

Finding that headline retail inflation inched up in June, while core inflation, especially excluding precious metals, remained low; it said liquidity conditions however improved further, supporting the ongoing credit growth. 

The headline Consumer Price Index (CPI) inflation crossed the target for the first time since January 2025, increasing to an 18-month high of 4.4% in June 2026 from 3.9% in May, the officials said, adding the pick-up in inflation was driven by ‘food and beverages’ and ‘fuel’ components, while core inflation stood unchanged.

The increase in ‘food and beverages’ inflation remained broad-based driven by meat, edible oils, fruits and spices. On a month-on-month (MoM) basis also, all the sub-components of ‘food and beverages’ in the CPI basket edged up in June.

Fuel inflation spiked in June, driven by increase in retail prices of petrol, diesel and liquefied petroleum gas (LPG),” they said.

Nevertheless, core inflation remained stable at 3.9% year-on-year (YoY) in June 2026, amidst decline in ‘personal care, social protection and miscellaneous goods and services’; partially offset by rise in ‘restaurant and accommodation services’.

Inflation edged up both in urban and rural areas and most of the states/UTs recorded inflation in the range of 2-6%, according to them.

The Reserve Bank of India (RBI) on Wednesday issued the ‘Guidance on Regulatory Expectations for Data Governance’ for banks and other Regulated Entities (REs) prescribing a comprehensive framework to strengthen governance of data across the banking system. 

The objective of the guidance is to improve data quality, accountability, risk management and security while ensuring compliance with the Digital Personal Data Protection (DPDP) Act, 2023, and other applicable laws.

This has become important because with the increasing digitalisation of the financial sector and growing adoption of technology-driven business models, data has emerged as a critical asset for REs.

As the volume, variety and velocity of data continue to increase, effective data governance has become essential to ensure that data remains accurate, consistent, secure and fit for purpose across functions and systems, the RBI said. 

Weaknesses in data governance and its management can lead to broader financial, operational, compliance and reputational risk for the REs, it said. 

Recognising this, this draft has been released to support REs in strengthening their data governance framework and promoting sound practices relating to data management across the data lifecycle. 

Under the guidance, all REs have been directed to establish a comprehensive Data Governance Framework (DGF) aligned with their overall risk management framework. 

The framework needs to be proportionate to the size, complexity, business model and technology infrastructure of each bank, while covering all aspects of data governance, including organisational structure, policies, processes, technological systems, audit mechanisms and the entire data lifecycle. 

The RBI has also asked banks to review the framework annually or more frequently whenever required. It has assigned a key role to the board of directors in overseeing the implementation of the DGF. 

REs have been directed to establish a board-level data governance committee or assign the responsibility to an existing board committee to supervise implementation of the framework, formulate governance policies, periodically review them and place reports on data governance, breaches and other material issues before the board. 

The REs at the operational level must also establish an executive-level data governance committee comprising representatives from data management, information technology, information security, risk management, compliance and business functions to ensure effective implementation of the framework.

The RBI has laid significant emphasis on data risk management by directing banks to integrate data risks into their overall enterprise risk management framework.

REs have been asked to identify and manage risks relating to data quality, ownership, privacy, security, classification, cross-border data processing and third-party arrangements.  The framework should be built on principles such as accountability, integrity, transparency, auditability, traceability, proportionality and standardisation. 

REs have also been instructed to continuously assess the effectiveness of their governance framework and subject it to periodic internal and external audits.

To strengthen accountability, the guidance requires banks to establish a dedicated data function headed by a senior executive not below the rank of Chief General Manager or its equivalent.

Separate roles have also been prescribed for Data Owners, Data Stewards and Data Custodians. While data owners will be responsible for data definitions, quality, classification, metadata and governance within their domains; data stewards will oversee day-to-day implementation of governance standards. 

Data custodians will manage technical controls relating to access, storage, backup, business continuity, disaster recovery and secure disposal of data.

The RBI has also introduced detailed requirements covering the entire data lifecycle. 

REs have been directed ensure that data is collected only for legitimate business purposes and that ownership, classification, consent and usage requirements are defined at the point of origination. 

During processing and sharing, institutions must adopt approved standards while deploying security measures such as encryption, tokenisation, anonymisation and data loss prevention controls. 

REs are also required to establish policies governing data retention, archival and secure disposal, ensuring that information remains accessible for regulatory, supervisory and audit purposes throughout the prescribed retention period.

A major feature of the guidance is the requirement to establish a Single Source of Truth (SSOT) for all critical data elements so that all business functions rely on one authoritative source of information. 

REs have also been directed to maintain comprehensive metadata and data lineage records to ensure that data remains traceable throughout its lifecycle. In addition, they must implement robust data quality management processes, develop measurable quality metrics and periodically review persistent data quality issues at the board committee level.

The RBI has further tightened norms governing third-party data sharing by making banks fully responsible for customer and institutional data shared with service providers and group entities. 

As per the guidance REs must ensure that such sharing takes place only for approved purposes, with appropriate access controls, encryption, contractual safeguards, continuous monitoring and periodic audits. 

Through these measures, the central bank aims to build a stronger data governance ecosystem that enhances operational resilience, supports informed decision-making and protects customer data in India’s rapidly evolving digital banking environment.

Transmission of the 50 basis points (bps) rate cut between March and April 2026 , was uneven across sectors, according to Reserve Bank of India’s (RBI) bulletin released on Monday (June 22, 2026).

Transmission of rate cuts to both fresh and outstanding loans has been uneven, the banking regulator observed.

Between May 2022 and Jan 2025, RBI increased repo rate by 250 bps. Between February 2025 and April 2026, the repo rate decreased 85 basis points. A basis point is 1/100th of the percentage. 

The effect on the customers however were not commensurate. Lending and deposit rates hardened. “Transmission to the lending rates fresh and outstanding loans have remained uneven across sectors. During the current easing cycle, the pass-through to lending rates was more pronounced in private sector banks, while public sector banks exhibited relatively stronger transmission to deposit rates,” RBI said in the bulletin. 

In the times when RBI increased rates, weighted average deposit rates increased 259 basis points, more than the repo rate increase of 250 points in the period. During the easing cycle however, WADR on fresh deposits dipped just 85 bps as opposed to the 125 bps between Feb 2025 to April 2026. 

For outstanding deposits, the transmission was even moderated, with 206 bps during rate hikes and 50 bps during rate cuts. 

In terms of loans, weighted average lending rates overall increased 182 bps during rate hikes and dipped 83 bps in easing cycle.

Overall, continued to grow at a rate faster than deposits. Credit grew at a rate of 17.7% and deposits at just 12.2% in May 2026. The wedge has been widening since August 2025.