HSBC has raised its forecast for the current RBI tightening cycle. The bank now expects a total of 75 basis points of hikes, taking the repo rate to 6% by the end of December: 25 bps more than its previous call.
The upgrade follows last week’s 25 bps increase and the shift to a “calibrated tightening” stance. What has changed is the intensity of the pressure: oil at $105, the rupee briefly touching 96.8, and inflation at a two-year high of 5.5%. The central bank responded not only with the rate move but also with a set of FX regulatory changes designed to make speculative positioning more expensive and discourage certain basis trades.
HSBC’s base case is that the RBI will stay within the 2 to 6% inflation band and continue using other tools (intervention, regulation, and possibly tax incentives for foreign inflows) rather than lean exclusively on rates. At 6%, real rates are projected to climb back into the 1.4 to 1.9% “neutral” zone by the second half of 2027. That is the level the central bank itself has previously described as appropriate when inflation is near target and growth is solid.
The bank still keeps a higher-risk scenario on the table: another 75 bps of hikes, taking the total cycle to 150 bps. That would require either a sustained rapid drain on foreign-exchange reserves or inflation averaging well above 6% for several months. HSBC argues the bar for that outcome remains high. Unlike 2013, the economy does not look overheated, and the current-account deficit is relatively contained. The sequence of measures has also been reversed this time: regulatory and FCNR steps came first, rate hikes later.
Two factors will decide whether the central case holds. First, whether the recent pace of reserve losses slows. Second, whether inflation stays broadly inside the target band over a six-month horizon. If either of those assumptions breaks, the case for deeper hikes strengthens.