HSBC suggests the RBI act early on rates to strengthen credibility, support the currency, and reduce the need for larger tightening later. This strategy is called
RBI Rate Hikes Likely In October, December? HSBC Retains 5.75% Repo Rate Call
The report from HSBC Global Investment Research said it maintained its view of two 25 basis point hikes in the October and December meetings, taking the repo rate to 5.75 per cent.

- HSBC suggests early rate hikes, forecasting two 25bps increases.
- Early rate hikes strengthen credibility, support currency, reduce later tightening.
- FCNR(B) inflows created liquidity surplus, raising inflation and risks.
New Delhi, Sep 18 (IANS) India’s central bank should consider acting early on rates to strengthen credibility, support the currency and reduce the need for larger tightening later, a report said on Friday.
Suggesting the RBI to consider "hiking early to hike less", the report from HSBC Global Investment Research said it maintained its view of two 25 basis point hikes in the October and December meetings, taking the repo rate to 5.75 per cent.
"We also expect further clarity/steps on liquidity removal in the October meeting", the report said.
The report argued that early moves help markets infer whether the governor is genuinely inflation‑averse, reduces the inflation risk premium and that credibility can do some of the tightening, meaning fewer hikes may be needed later.
"Global and domestic conditions have shifted quickly. The Foreign Currency Non-Resident Bank scheme has pulled in $127 billion, lifting spot FX reserves, but leaving a domestic liquidity glut," said Pranjul Bhandari Chief India Economist/Strategist, ASEAN Economist.
The oil price is up 20 per cent since July, the Fed hiked 25 bps on September 16 and hinted at further rises, and the USD has rallied overnight – all of which matters for USDINR, the report noted.
Also Read : UPI MDR From October 15: Delhi Traders Say New Charge Could Push Customers Towards Cash
The report said that market expectations are now converging in India on two themes: removal of liquidity and RBI rate hikes.
FCNR(B) inflows have created a core liquidity surplus of nearly Rs 15 trillion. Excess liquidity can quickly become inflationary and can raise financial stability risks if banks become dependent on abundant liquidity.
The RBI has already deployed Variable Rate Reverse Repos (VRRRs), Open Market Operation (OMO) Sales, and FX swaps/spot sales, as Cash Reserve Ratio (CRR) hikes and Market Stabilisation Scheme (MSS) issuance are options under consideration.
(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)
Frequently Asked Questions
What action does HSBC recommend for India's central bank regarding interest rates?
What interest rate changes does HSBC Global Investment Research predict for the RBI?
HSBC maintains its view of two 25 basis point hikes in the October and December meetings. This would increase the repo rate to 5.75 percent, with further clarity on liquidity removal expected in October.
Why does India currently have a domestic liquidity glut?
The Foreign Currency Non-Resident Bank (FCNR(B)) scheme has pulled in $127 billion. This has led to a core liquidity surplus of nearly Rs 15 trillion in the domestic market.
What measures has the RBI taken or is considering to manage liquidity?
The RBI has deployed Variable Rate Reverse Repos (VRRRs), Open Market Operation (OMO) Sales, and FX swaps/spot sales. Cash Reserve Ratio (CRR) hikes and Market Stabilisation Scheme (MSS) issuance are also under consideration.


























