RBI may raise interest rates by 50-75 basis points in current tightening cycle: Bank of Baroda report

The Reserve Bank of India may raise interest rates by a cumulative 50-75 basis points in the current tightening cycle, according to a Bank of Baroda report. It also highlights strong consumption, mixed tax collections and concerns over rural and urban confidence

New Delhi: The Reserve Bank of India (RBI), which raised policy rates for the first time by 25bps in nearly four years with a change in stance to calibrated tightening from neutral, is expected to act in a pre-emptive manner and “we expect a cumulative 50-75bps hike in this tightening cycle”, a report said on Saturday.

The glut in system liquidity has been absorbed by RBI’s measures and “we expect RBI to hike rates in next policy,” said the report by Bank of Baroda.

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Consumption in the month of September paints a strong picture overall as reflected by high frequency indicators such as non-oil and non-gold imports, electronic imports and auto sales data amidst festive cheer.

“Growing momentum in power demand, along with higher steel consumption and growth in personal loans segment, further supports the uptick in economic activity. However, there are some concerns as noted in deteriorating consumer confidence (RBI) for both urban and rural sector,” the report noted.

On the agriculture front, Southwest monsoon this year has been below normal (13 per cent below long period average or LPA) due to prevailing El Nino conditions. As a result, the increase of kharif crops was lower along with lower reservoir level which could have an impact on Rabi sowing.

“Centre’s fiscal deficit ratio (12 MMA trailing basis) eased to 4.4 per cent as of September from 5.1 per cent as of September 2025. In H1 FY27 (April-September), net revenue growth has risen by 3.6 per cent, following a 4.5 per cent rise between April-September 2025. Moderation was led by indirect tax collections, which fell by (-) 4.9 per cent versus 2.6 per cent rise noted in H1FY26,” the report highlighted.

Direct tax collections on the other hand performed better (13.1 per cent versus 3.1 per cent). On the spending front, overall expenditure is maintaining momentum (10.7 per cent versus 9.1 per cent). This was on account of revenue spending, which surged by 10 per cent versus 1.5 per cent.