SBI Research has projected that the Reserve Bank of India could raise the repo rate by another 50 basis points to 6 per cent by December, warning that inflationary pressures and capital outflows may force a sharper tightening cycle than markets currently expect.
The forecast, published in the research wing's latest report on October 8, follows the RBI's own move a day earlier to lift the benchmark repo rate by 25 basis points to 5.50 per cent — the central bank's first increase since February 2023. The six-member Monetary Policy Committee simultaneously shifted its stance from "neutral" to "calibrated tightening."
From watchfulness to explicit tightening
SBI Research described the October policy as a shift from "watchfulness to explicit tightening," arguing that the central bank's near-term options have narrowed to either another hike or a pause, depending on how inflation and growth data evolve. The report expects retail inflation to peak at around 6.8 per cent in November 2026, and, drawing on past policy cycles, estimates that this cycle's peak repo rate could settle around 6 per cent.
The researchers also left room for faster action, calling for an "agile and tactile response" that could include the full 50-basis-point hike at the next scheduled meeting — or even an off-cycle move if conditions deteriorate.
Other forecasters split on the path ahead
Not every forecaster agrees on the scale. ICRA expects just one more 25-basis-point increase in December, taking the repo rate to 5.75 per cent, followed by a pause unless inflation throws a significant upside surprise. The rating agency flagged crude oil, food prices and weather as the key risks, noting that oil around $100 a barrel could push inflation to 5.3-5.5 per cent while trimming GDP growth to about 6.8 per cent.
Axis Mutual Fund leans closer to SBI's hawkish view, expecting another 50-75 basis points of tightening in the near term that could take the operative policy rate to roughly 6-6.25 per cent. The fund house pointed to higher crude prices, a softer rupee, elevated global bond yields and a hawkish US Federal Reserve as factors keeping pressure on the RBI.
Rupee support and liquidity measures proposed
SBI Research also proposed steps to steady the currency, which it said had slipped to a five-month low, alongside debt outflows of $2.1 billion in September as the dollar strengthened. Its suggestions include a graded long-term capital gains structure for investments held beyond a reasonable period such as three years, a temporary widening of the interest-rate corridor by raising the Marginal Standing Facility rate, and continuing to manage liquidity through open-market and variable-rate operations rather than the cash reserve ratio. It also called for trimming the foreign-currency export realisation and repatriation window to six months from the current nine.
The RBI itself has raised its FY27 GDP growth forecast to 7.1 per cent from 6.7 per cent and its CPI inflation forecast to 5.2 per cent from 5 per cent, underlining why policymakers now see inflation control as the priority.
Sources: RBI may deliver 50 bps 'jumbo' hike in December, repo rate seen at 6%: SBI Research — The Hindu BusinessLine; RBI rate hike: ICRA sees one more 25 bps hike, Axis MF expects up to 75 bps more — BusinessToday
The forecast, published in the research wing's latest report on October 8, follows the RBI's own move a day earlier to lift the benchmark repo rate by 25 basis points to 5.50 per cent — the central bank's first increase since February 2023. The six-member Monetary Policy Committee simultaneously shifted its stance from "neutral" to "calibrated tightening."
From watchfulness to explicit tightening
SBI Research described the October policy as a shift from "watchfulness to explicit tightening," arguing that the central bank's near-term options have narrowed to either another hike or a pause, depending on how inflation and growth data evolve. The report expects retail inflation to peak at around 6.8 per cent in November 2026, and, drawing on past policy cycles, estimates that this cycle's peak repo rate could settle around 6 per cent.
The researchers also left room for faster action, calling for an "agile and tactile response" that could include the full 50-basis-point hike at the next scheduled meeting — or even an off-cycle move if conditions deteriorate.
Other forecasters split on the path ahead
Not every forecaster agrees on the scale. ICRA expects just one more 25-basis-point increase in December, taking the repo rate to 5.75 per cent, followed by a pause unless inflation throws a significant upside surprise. The rating agency flagged crude oil, food prices and weather as the key risks, noting that oil around $100 a barrel could push inflation to 5.3-5.5 per cent while trimming GDP growth to about 6.8 per cent.
Axis Mutual Fund leans closer to SBI's hawkish view, expecting another 50-75 basis points of tightening in the near term that could take the operative policy rate to roughly 6-6.25 per cent. The fund house pointed to higher crude prices, a softer rupee, elevated global bond yields and a hawkish US Federal Reserve as factors keeping pressure on the RBI.
Rupee support and liquidity measures proposed
SBI Research also proposed steps to steady the currency, which it said had slipped to a five-month low, alongside debt outflows of $2.1 billion in September as the dollar strengthened. Its suggestions include a graded long-term capital gains structure for investments held beyond a reasonable period such as three years, a temporary widening of the interest-rate corridor by raising the Marginal Standing Facility rate, and continuing to manage liquidity through open-market and variable-rate operations rather than the cash reserve ratio. It also called for trimming the foreign-currency export realisation and repatriation window to six months from the current nine.
The RBI itself has raised its FY27 GDP growth forecast to 7.1 per cent from 6.7 per cent and its CPI inflation forecast to 5.2 per cent from 5 per cent, underlining why policymakers now see inflation control as the priority.
Sources: RBI may deliver 50 bps 'jumbo' hike in December, repo rate seen at 6%: SBI Research — The Hindu BusinessLine; RBI rate hike: ICRA sees one more 25 bps hike, Axis MF expects up to 75 bps more — BusinessToday
