"We concur with the majority of the MPC members on upside risks to inflation and now expect a cumulative 50 bps repo rate hike in 2018," Nomura said in a research note.
The six-member Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, had opted for status quo on the benchmark policy rate (repo rate) on April 6.
Nomura believes that inflation will remain benign at sub-four per cent levels in the second quarter but will rise sharply to 5.5-6 per cent by the fourth quarter of 2017 and in the first half of 2018 as cyclical factors such as a narrowing output gap, stronger rural wage growth and adverse base effects push it higher.
"We have, therefore, changed our policy call and now expect a cumulative 50 bps rate hike in 2018 (25 bps each in second quarter and third quarter of 2018)," Nomura added.
The Reserve Bank of India, in its monetary policy review meet on April 6, kept the repurchase or repo rate - at which it lends to banks - unchanged at 6.25 per cent but increased reverse repo rate to 6 per cent from 5.75 per cent.
"Overall, we agree with the MPC members that food inflation will reverse as demonetisation effects fade and there are risks to the inflation outlook, which will become apparent as favourable base effects fade," Nomura said.