RBI Repo Rate Hike of 75-100 Bps Anticipated: SBI Report
SBI Capital Markets forecasts a potential increase in the repo rate by 75-100 basis points amid rising inflation concerns.
RBI may raise repo rate significantly in December 2026.
Consumer inflation expected to peak in Q3 FY27.
India's GDP growth remains robust at 7.8% YoY in Q1 FY27.
The Reserve Bank of India (RBI) is projected to increase the repo rate by 75 to 100 basis points in its current tightening cycle, as indicated by a recent report from SBI Capital Markets. This anticipated hike comes in response to ongoing inflationary pressures, which are expected to remain high before easing in the next financial year.
SBI Capital Markets suggests that while gradual increases in the repo rate are the base case scenario, a more substantial hike could occur in December 2026, contingent on inflation data from September and October. The report highlights the Monetary Policy Committee's recent decision to raise the repo rate by 25 basis points and shift its stance from “Neutral” to “Calibrated Tightening,” emphasizing a stronger commitment to controlling inflation.
Consumer inflation is expected to peak in the third quarter of FY27, with wholesale price inflation likely to start declining from March 2027 due to favorable base effects. The report indicates that consumer price inflation may trend below 5% year-on-year beyond the first quarter of FY28. India's economy has shown resilience, with real GDP growth recorded at 7.8% year-on-year in Q1 FY27, surpassing market expectations of 7.1%.
Despite the positive growth indicators, SBI Capital Markets has raised concerns regarding potential risks to consumption in the latter half of FY27. Factors such as increasing borrowing costs, weak rural sentiment, and lower kharif sowing could impact economic stability. Additionally, ongoing geopolitical tensions and crude oil prices hovering around USD 100 per barrel may continue to exert cost pressures on the economy.
The report also notes that benchmark 10-year government bond yields have risen approximately 70 basis points in calendar year 2026, with expectations that yields will remain elevated until geopolitical tensions subside and inflationary pressures ease. Higher interest rates are likely to benefit bank margins in the short term, although non-food credit growth may gradually decelerate towards the end of FY27. SBI Capital Markets anticipates that FY27 will be favorable for banks, while bonds may regain investor interest in FY28, amid global uncertainties and rising yields in advanced economies.
