SBI Flags Back-To-Back Rate Hikes, Inflation Risks Mount Across India
Mumbai: India may require a calibrated monetary response as inflation pressures broaden, with the Reserve Bank of India’s October and December policy meetings offering room for two consecutive 25-basis-point rate increases, State Bank of India said. In its latest Ecowrap report, SBI described the two meetings as a 'perfect pitch' for nuanced rate action, followed by a pause to assess incoming…
Mumbai: The State Bank of India (SBI) has flagged the need for two consecutive 25-basis-point rate increases at the Reserve Bank of India's upcoming October and December policy meetings, as inflation pressures widen across the country. In its latest Ecowrap report, SBI sees these meetings as the ideal opportunity for nuanced rate adjustments, followed by a pause to evaluate economic data and the effects of tighter policy.
Retail inflation, as measured by the Consumer Price Index (CPI), surged to 4.82 percent in August 2026 from 4.45 percent in July 2026, indicating price increases in almost every sector. Rural inflation remained significantly higher at 5.23 percent compared to urban inflation at 4.31 percent. Food inflation jumped to 5.66 percent, driven by higher prices of essential items like onions, ginger, and garlic.
Core inflation, which excludes food, fuel, household, and transport components, also rose to 4.16 percent from 3.87 percent in July.
SBI's analysis reveals that price pressures are spreading across a broader range of goods. While only 22 commodities accounted for 90 percent of the weighted contribution to headline inflation in January 2026, that number more than doubled to 51 by August 2026. This suggests that price increases are no longer confined to a narrow basket of items, making inflation more challenging to curb.
The bank anticipates that headline CPI inflation could surpass 6.5 percent before easing below 6 percent in early 2027. This projection bolsters the case for measured tightening measures rather than a large, disruptive policy move. However, the outlook is further clouded by the escalating conflict in West Asia. SBI warns that increased geopolitical risks could keep crude oil prices above USD 100 a barrel in the near term, intensifying volatility and potentially raising transport and production costs.
This, in turn, could exacerbate domestic price pressures and complicate the Monetary Policy Committee's efforts to balance inflation control with economic growth during subsequent policy meetings.
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