Analysts at Citigroup suggest that India's stronger-than-expected economic growth has removed a key barrier to monetary policy normalization, creating room for a potential rate increase of 50-75 basis points in the latter half of the fiscal year.

According to the investment bank, a rate hike remains a possibility at the October central bank meeting, with its baseline forecast expected to be confirmed following the release of August inflation data.

Citi has revised its real GDP growth projection for fiscal 2027 upward to 7.3%, citing the 7.8% year-on-year expansion recorded in the April-to-June quarter.

The report highlights that real investment growth in India reached 11.9% during the same period, marking the strongest level since late 2018, excluding pandemic-related volatility. This development reinforces the view that corporate capital expenditure momentum is improving.

Due to unfavorable base effects, the El Ni帽o weather pattern, and the fading impact of last year's policy stimulus measures, Citi expects economic growth in the second half of fiscal 2027 to moderate to 7.1%, down from 7.6% in the first half.