RBI Faces Pressure to Raise Rates Amid Fading Inflation Gap and Hawkish Fed

The Reserve Bank of India (RBI) may raise interest rates as early as October due to firming inflation and the US Federal Reserve's hawkish stance. The RBI's inflation target is around 4% annually, but recent data shows a significant increase in August CPI inflation, reaching 4.82%, up from 4.45% in July.

The rise in crude prices and a higher headline consumer price index (CPI) print for August are also contributing to the pressure on the RBI to raise rates. Experts expect rate hikes in October and December if inflation continues to rise, with some predicting that headline CPI will cross 6% over the next few months.

Namrata Mittal, chief economist at SBI Mutual Fund, expects inflation to move higher in the coming months, stating that 'next month's CPI is tracking ~5.5 per cent.' Radhavi Deshpande, chief investment officer at Kotak Mahindra Life Insurance, also sees a higher probability of an RBI rate increase, though she notes that a hike is not certain yet.