Persistent food price pressures, weak monsoon conditions and rising input costs could lead to 25-basis-point rate hikes in December and February, the bank said
Food inflation is expected to remain elevated over the coming months, increasing the possibility of monetary tightening by the Reserve Bank of India (RBI). ICICI Bank expects the central bank to raise interest rates by 25 basis points in December and follow it with another increase in February.
According to the bank’s report, the inflation outlook will largely depend on the upcoming rabi crop, following a shortfall in kharif production. Lower reservoir levels and inadequate soil moisture could affect crop output, adding to the risk of higher food prices in the coming months.
Cereals, pulses, coarse cereals and edible oils are among the categories facing upward price pressure. The uneven distribution of monsoon rainfall could also affect crop yields, while inflationary pressure has extended to other food items, including meat, milk and eggs.
India’s retail inflation increased to 6.08 per cent year-on-year in October from 5.54 per cent in September, crossing the upper limit of the RBI’s tolerance band for the first time in two years. The increase was largely driven by food prices and an unfavourable base effect. Food inflation rose to 8.9 per cent in October from 7.7 per cent in the previous month. A low base, along with a 0.9 per cent month-on-month increase in food prices, contributed to the acceleration, the report said.
Inflationary pressure has also spread across a wider section of the consumer basket. Around 53 per cent of the weighted Consumer Price Index (CPI) basket recorded inflation above 4 per cent in October, compared with 20 per cent in March 2026.
Nearly 70 per cent of food items registered inflation above 4 per cent, with price pressures visible across pulses, cereals and edible oils. Meat, milk and eggs have also recorded upward price movements, indicating broader food inflationary trends.
Core Inflation Sees Increase
Core inflation, excluding gold and silver, increased to 3.8 per cent in October from 3.2 per cent in September. The rise was driven by higher goods inflation, reflecting the pass-through of increased input costs and a low base following Goods and Services Tax cuts.
ICICI Bank identified weak monsoon conditions and elevated energy prices as two major supply-side factors contributing to the increase in inflation. However, moderation in crude oil prices and their return to the RBI’s baseline assumptions could provide some relief in the coming months.
ICICI Bank has revised its retail inflation forecast for FY27 to 5.2 per cent from 5.1 per cent earlier. The forecast for FY28 has also been raised to 5 per cent from 4.9 per cent, reflecting persistent price pressures.
The report noted that inflation is slightly above the RBI’s projected trajectory for the third quarter. However, the resumption of foreign portfolio investor inflows and moderation in crude oil prices could influence the Monetary Policy Committee’s assessment of the inflation outlook.
The bank expects the RBI to increase interest rates by 25 basis points each in December and February to bring inflation back towards its target in the second half of FY28. It added that food inflation could remain elevated over the next few quarters, with a high base likely to moderate price pressures in H2FY28.
