India RBI may hike rates by 50 bps due to inflation, global yields - swaps

55%, highest since April 2 By Nimesh Vora and Dharamraj Dhutia MUMBAI, Oct 6 (Reuters) — The Reserve Bank of India may tighten monetary policy with a larger interest rate hike than most expect on Wednesday, according to at least five bankers' interpretation of swap pricing, as policymakers confront price pressures and surging global yields. 25% repo rate. This suggests a 25-basis-point increase is fully priced in, with a modest probability of a 50-basis-point hike. Most economists in a Reuters poll expect the central bank to hike by 25 basis points on Wednesday, in what would be a first rate increase since early 2023.

"I think there is a one-in-three chance that the RBI surprises with a 50 bps hike," said Krishna Bhimavarapu, APAC economist at State Street Investment Management. " India's central bank has avoided raising interest rates so far this year, even while the Federal Reserve and emerging market peers have raised rates. The OIS market is typically the clearest gauge of policy rate expectations, but has been less reliable recently as market participants with a stronger focus on global factors have dominated trading. Earlier in 2026, this market was indicating RBI will commence rate hikes from June to defend the rupee.

The central bank used capital flow measures instead. Bankers say the 1-month OIS trading level understates market expectations of a jumbo rate hike because the overnight rate used to settle the swap (MIBOR) has been consistently trading below the repo rate amid abundant banking-system liquidity. 15% since August 1. That has rendered the 30-basis-point spread between the OIS rate and the policy repo rate a less reliable measure of the chances of a 50-basis-point hike.

Adjusting for this, bankers say the market is assigning a 25% probability of a larger rate increase. The bankers asked not be named as they aren't allowed to speak to the media. A 50 bps hike "remains an outside risk" as tighter global financial conditions increasingly shape the RBI's reaction function, said Madhavi Arora, chief economist at Emkay Global Financial Services. Global Yields Reset Higher The risk of a larger RBI move comes as global bond yields surge on mounting concerns that persistently high energy prices could keep inflation sticky, forcing central banks to maintain tighter monetary policy for longer.

Indonesia raised rates by 100 basis points over May and June to support the rupiah, while the Philippines has tightened policy as inflationary pressures broadened. P. Morgan. "The RBI has remained patient because it has characterized inflation risks as being largely supply-side," he wrote in a note this week.

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