India's inflation may hit RBI's 6% ceiling in October

what happened

A Mint poll of 15 economists expects India's retail inflation to rise to 6% in October from 5.5% in September. That would be a two-year high and the first breach of the Reserve Bank of India's (RBI) 6% upper tolerance limit since October 2024. Estimates range from 5.9% to 6.2%. Official data is due on November 12.

Food prices and an unfavourable base effect after the goods and services tax (GST) rationalisation are the main drivers. Icra expects food and beverage inflation above 8%. High oil and commodity prices add further pressure, and yields on the 10-year government bond reached a four-year high in late October.

In October the RBI raised its repo rate by 25 basis points to 5.5% and shifted to calibrated tightening. IDFC First Bank's chief economist Gaura Sengupta expects another 25 basis point hike in December, not a larger one, as the rupee has stabilised.

why it matters

A signal of a possible December hike means rate cuts are unlikely soon. That supports Indian bond yields and may help the rupee, while rate-sensitive credit sectors in equities could face more pressure.

market impact

Indian bonds and rupee: expected RBI tightening pressures bonds and supports yields

• ▼Indian government bonds pressure down — expectations of further RBI rate hikes push bond prices lower
• ↔Indian rupee mixed — tight policy supports the currency, while inflation and oil weigh on it

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instruments