PGIM India: Rate-Cut Cycle Over, RBI May Hike 50-75 bps by FY27 on Sticky Inflation

The Quick Take

• PGIM India's fixed-income head Puneet Pal expects RBI to end its rate-cut cycle and hike 50-75 bps by FY27
• Higher crude oil prices and sticky inflation are cited as primary triggers for the expected monetary pivot
• Indian bond yields are forecast to inch higher as market prices in a tighter policy trajectory

PGIM India's fixed-income strategist Puneet Pal has declared India's multi-quarter rate-cut cycle over, forecasting that the Reserve Bank of India may hike policy rates by up to 50-75 basis points before the end of FY2027. The call is driven by above-target crude oil prices pressuring India's current account deficit and persistent core inflation proving resistant to prior monetary easing. This marks a material shift from consensus expectations that had favored an extended accommodative stance through most of 2026, and carries direct implications for Indian bond and equity positioning.

A rate hike trajectory would most directly hurt Indian sovereign bond prices, particularly the 10-year benchmark, while pressuring interest-rate-sensitive equities including real estate, utilities, and high-leverage infrastructure firms. Banks with floating-rate loan books would benefit from higher spreads, but asset-quality stress could resurface for retail borrowers. Foreign portfolio investors holding rupee bonds under the JPMorgan Index inclusion framework face mark-to-market losses if yields rise faster than anticipated, potentially triggering FPI outflows from India's debt markets.

The key trigger to watch is the RBI's Monetary Policy Committee meeting schedule through FY27, particularly any language shift from accommodative to neutral. The macro variable is crude oil: Brent sustaining above $90 per barrel would accelerate inflation pass-through and make rate hikes near-inevitable. September and October 2026 CPI prints are the critical near-term data releases. A sustained rupee depreciation above 84 per dollar would add imported inflation pressure and harden the case for the policy reversal Pal forecasts.

Synthesized from 1 source.