SBI Research said the Reserve Bank of India may hike interest rates by 50 basis points in December. The report cited rising inflation and high crude oil prices as key reasons. Policymakers will meet from December 2-4 to decide on the repo rate as price pressures spread across many items.
SBI Research has retained its forecast of a cumulative 50-basis-point interest rate hike by the Reserve Bank of India (RBI) in December, citing persistent inflationary pressures, elevated crude oil prices and a shift towards a tighter monetary policy stance.
In its analysis of the October Monetary Policy Committee (MPC) minutes, SBI Research said the RBI could deliver the increase either through a straightforward 50-basis-point hike in the repo rate or through a combination of a 25-basis-point rate increase and an asymmetric widening of the liquidity adjustment facility (LAF) corridor.
The RBI's MPC unanimously raised the repo rate by 25 basis points to 5.50 per cent earlier this month and shifted its policy stance to calibrated tightening. Governor Sanjay Malhotra has indicated that future decisions will depend on the trajectory of inflation, economic growth, supply-side shocks and the spread of price pressures.
Under the first scenario outlined by SBI Research, the RBI could raise the repo rate by 50 basis points to 6 per cent in December. Alternatively, it could increase the repo rate by 25 basis points to 5.75 per cent while widening the LAF corridor asymmetrically.
Under the second option, the marginal standing facility (MSF) rate would rise to 6.25 per cent, while the standing deposit facility (SDF) rate would remain unchanged at 5.50 per cent. According to SBI Research, this approach could help maintain orderly market functioning amid global uncertainty.
Inflation pressures broaden
Inflation remains a key concern for policymakers. SBI Research noted that the number of commodities accounting for 75 per cent of the Consumer Price Index's weighted contribution increased from 25 in August to 31 in September, indicating that price pressures are spreading across a wider range of items.
The report expects inflation to peak below 6.5 per cent in November. It also projects dated Brent crude prices to average $110 per barrel over a 15-day forecast period, adding to the risks surrounding the inflation outlook.
According to the RBI's October MPC minutes, headline retail inflation is projected at 6 per cent in the third quarter of FY2026-27 before easing to 5.7 per cent in the fourth quarter. The central bank has projected India's GDP growth at 7.1 per cent for FY2026-27.
The RBI's next MPC meeting is scheduled for December 2-4, when policymakers will reassess inflation and growth conditions and determine the next course of monetary policy.