RBI may raise repo rate by 75-100 bps in current cycle: Report
SBI Capital Markets expects the Reserve Bank of India (RBI) to raise the repo rate by 75-100 basis points during the current tightening cycle, with a larger hike in December 2026 possible depending on inflation data. The report projects consumer inflation to peak in Q3 FY27 before easing, while warning that high crude oil prices, geopolitical tensions and rising borrowing costs could weigh on…
The Reserve Bank of India (RBI) may raise the repo rate by 75-100 basis points in the ongoing tightening cycle, based on a report from SBI Capital Markets. The report anticipates elevated inflation to persist for some time before easing in the subsequent fiscal year. SBI Caps suggests that incremental rate hikes are the prevailing expectation, although a more substantial increase in December 2026 remains a possibility contingent on September and October's inflation data.
The Monetary Policy Committee's 25-basis-point rate hike and change in stance from neutral to calibrated tightening indicate a greater emphasis on curbing inflation. The policy cycle is projected to shift in the first quarter of FY28 as the growth-inflation balance evolves. Inflationary trends are anticipated to peak in the third quarter of FY27, with wholesale price inflation potentially starting to ease from March 2027 due to favorable base effects.
Consumer price inflation is projected to fall below 5% year-on-year after the first quarter of FY28. Despite strong economic growth, with real GDP expanding 7.8% year-on-year in Q1FY27, surpassing forecasts of 7.1%, the report identifies risks to consumption in the second half of FY27, such as mounting borrowing costs, declining rural sentiment, and reduced kharif sowing.
Additionally, prolonged geopolitical tensions and crude oil prices near USD 100 per barrel could maintain cost pressures. The report notes that benchmark 10-year government bond yields have increased by around 70 basis points in 2026, likely remaining elevated until geopolitical tensions subside and inflationary pressures ease. Higher interest rates are expected to bolster bank margins in the short term, although non-food credit growth may gradually decelerate toward the end of FY27.
SBI Capital Markets anticipates FY27 to remain favorable for banks, while bonds might regain investor interest in FY28. The report also underscores global uncertainty, with rising yields in advanced economies and capital outflows from emerging markets exerting financial stress.
Written by urgent.news from The Economic Times - Economy's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
