The Reserve Bank of India is expected to raise the repo rate by 25 basis points at its October Monetary Policy Committee meeting, according to a poll, but the bigger debate is how far the tightening cycle will go.

Economists' estimates for cumulative rate hikes range from 50 to 100 basis points, making the RBI's policy language and Governor Sanjay Malhotra's guidance on the future rate path more important than the October move itself.

Barclays expects the RBI to deliver a total of 50 basis points of tightening, taking the terminal repo rate to 5.75%. Aastha Gudwani, economist at Barclays Bank, described the expected tightening as "monetary policy calibration" in response to "inflation normalisation".

Barclays expects the first 25-basis-point hike in October to be accompanied by a neutral stance, which would signal that the RBI does not intend to embark on an aggressive sequence of hikes. A second 25-basis-point increase in December would, in its view, be accompanied by a shift to a "calibrated tightening" stance.

At the other end of the spectrum, Deutsche Bank and Morgan Stanley expect cumulative tightening of 100 basis points. Deutsche Bank sees the terminal repo rate rising to 6.25% by mid-2027, with 50 basis points of hikes in October-December 2026 and another 50 basis points in April-June 2027.

Morgan Stanley expects four consecutive 25-basis-point hikes beginning in October, taking the terminal policy rate to 6.25% by April 2027. Upasana Chachra, Chief India Economist at Morgan Stanley, said the combination of a firm domestic growth-inflation mix and tighter global financial conditions "warrants an earlier start of policy rate hikes."

ANZ and Union Bank of India expect 75 basis points of cumulative tightening, while ICICI Securities Primary Dealership also sees 75 basis points. IDFC FIRST Bank, SMBC and Kotak Bank expect 50-75 basis points. Nomura and Barclays are at the lower end of the range with 50 basis points.

BofA Securities has also brought forward its call for the start of the hiking cycle to October from December. Rahul Bajoria, India and ASEAN Economist at BofA Securities India, said the RBI has "little reason to wait", citing resilient growth, broadening inflation and declining uncertainty around the global environment.

BofA expects the October move to be a 25-basis-point hike, while arguing that the RBI could use both its interest-rate and liquidity tools to signal a broader policy recalibration.

Inflation Strengthens Case for Tightening
The case for an October hike rests on signs that inflation pressures are becoming broader. CPI diffusion has increased, with 70% of the CPI basket recording higher month-on-month inflation in August. Refined core inflation, excluding precious metals, has also normalised to 4.2% on a three-month annualised basis, while services inflation has edged higher.

Economists also point to elevated wholesale and producer price inflation as evidence of pipeline price pressures.

One assessment cited in the poll expects headline inflation to potentially breach 6% in the fourth quarter of 2026, with 2026-27 inflation seen at 5.1% and 2027-28 at 5%. Higher food and fuel prices could keep headline inflation above the RBI's 4% target for longer, increasing the risk of second-round effects.

Global developments are adding to the case for tighter policy. Higher oil prices have raised inflation concerns, while tighter global financial conditions and compressed interest-rate differentials could leave the rupee more exposed during periods of global risk aversion.

The RBI's challenge will be to determine whether these pressures require a prolonged tightening cycle or a more limited recalibration.

Liquidity Likely to Complement Rate Signal
The October policy is also expected to provide clues on the RBI's approach to liquidity management, particularly as the central bank moves towards a tighter monetary stance.

IDFC FIRST Bank expects durable liquidity surplus to continue declining, with core liquidity surplus already falling to around 11 trillion rupees from a peak of 14.2 trillion rupees in September. It expects the remaining core liquidity surplus to fall to around 5 trillion rupees by March 2027, partly because of currency leakage.

The transient component of liquidity is expected to remain managed through variable rate reverse repo operations, with the RBI potentially continuing to roll over near-term sell-buy swaps.

Union Bank of India's Kanika Pasricha expects the RBI to maintain its "current prudent liquidity management approach", including term VRRRs, FX swaps and OMO sales. She does not expect a CRR increase at the October meeting.

BofA also expects liquidity to become an important policy signalling tool. With the RBI moving from a dovish policy stance towards a more neutral or hawkish rate bias, it argues that liquidity management could be aligned accordingly.

The bank expects the RBI to use VRRRs and OMO sales to absorb excess liquidity while avoiding more permanent measures such as a CRR hike.

This leaves markets with two separate but connected questions ahead of the October decision: how much further can the repo rate rise, and how will the RBI manage liquidity as it tightens policy?

The 25-basis-point October move is largely established in economist expectations. The bigger market signal will come from whether Governor Malhotra presents it as a limited recalibration or the first step in a sustained tightening cycle.

With economists divided between 50 and 100 basis points of cumulative hikes, the wording of the October statement and the governor's guidance could prove more important for markets than the initial 25-basis-point increase itself.