RBI May Consider 25-Bps Rate Hikes In October, December Amid Rising Inflation Risks: SBI Research

New Delhi, Sep 16 (KNN) The Reserve Bank of India (RBI) may consider two calibrated 25-basis-point rate hikes at its October and December Monetary Policy Committee (MPC) meetings amid broadening inflationary pressures and rising imported inflation risks from higher crude oil prices, SBI Research said in a report.

SBI Research noted that consumer price inflation (CPI) is expected to cross 6.5 per cent in the coming months before easing below 6 per cent in early 2027. It added that the central bank could use its October and December meetings to build a policy buffer before pausing to assess incoming data, ANI reported.

Inflationary Pressures Becoming Broad-Based

Retail inflation rose to 4.82 per cent in August 2026 from 4.45 per cent in July, with rural inflation at 5.23 per cent against 4.31 per cent in urban areas. Food inflation increased to 5.66 per cent, while core inflation rose to 4.16 per cent from 3.87 per cent.

SBI Research said inflation is also becoming more broad-based. Its analysis showed that 51 commodities accounted for the bulk of CPI's weighted contribution in August, compared with 22 commodities accounting for 90 per cent of the contribution in January.

The report projects CPI inflation at 5.88 per cent in September and 6.70 per cent in October, before moderating to 6.19 per cent in November and 5.64 per cent in December. It expects inflation at 5.80 per cent in January 2027 and 5.90 per cent in February.

Crude Oil Adds to Imported Inflation Risks

Global crude prices have emerged as another major upside risk amid the widening West Asia conflict. Dated Brent touched USD 108 a barrel, while India's crude basket rose from USD 82.04 a barrel in July to USD 90.19 in August and USD 109.76 in September.

SBI Research expects crude oil prices to remain above USD 100 a barrel in the near term amid high volatility. Imported inflation was already at 7.75 per cent year-on-year in August, substantially above headline CPI inflation of 4.82 per cent.

The report noted that the pass-through from higher crude prices remains partial until retail fuel prices are revised, leaving scope for further pressure on domestic inflation.

Liquidity Withdrawal to Remain Calibrated

SBI Research also cautioned the RBI against aggressive liquidity withdrawal despite surplus liquidity in the banking system. Strong credit growth is expected to absorb excess funds, with system liquidity potentially normalising by the end of FY27 if credit demand strengthens as anticipated.

Aggressive withdrawal could create a deep liquidity deficit in the third and fourth quarters, which are traditionally stronger periods for credit and cash demand, the report said.

The report also flagged rising bond yields, with the benchmark 10-year yield moving towards 7.10 per cent and potentially rising to 7.25 per cent and subsequently 7.50 per cent if supply-side shocks and energy-security concerns intensify.

Overall, SBI Research's assessment points to two 25-basis-point rate hikes in October and December, followed by a pause to reassess inflation, crude prices, liquidity and financial-market conditions.

(KNN Bureau)