Borrowers may have to prepare for higher EMIs as the Reserve Bank of India (RBI) could begin raising interest rates by the end of 2026. According to a report by BofA Securities, the RBI is expected to keep the repo rate unchanged for now, but a cumulative hike of up to 50 basis points from December 2026 remains likely if inflationary pressures increase.
The report says that while global geopolitical risks have eased, domestic factors such as a weak monsoon and the possible impact of El Niño could drive food inflation in the second half of FY27. Despite this, India’s economic outlook remains strong, with FY27 GDP growth projected at 6.9%, supported by rising consumption and investment.
BofA also expects inflation to remain broadly under control, helped by adequate food stocks, softer global commodity prices, and stable trade conditions. Lower crude oil prices are likely to keep the current account deficit and fiscal deficit within manageable levels. However, if the RBI proceeds with rate hikes later this year, banks and NBFCs could face higher funding costs, which may be passed on to customers. As a result, home loans, car loans, and personal loans could become more expensive.
