SBI's Research Arm Forecasts Two 25 Bps RBI Rate Hikes in October and December

The Quick Take

• SBI's Economic Research Department expects the Reserve Bank of India to raise the repo rate by 25 basis points each in October and December, citing hardening crude oil prices and CPI inflation showing signs of generalization
• The twin-hike forecast from India's largest public sector bank's research arm signals institutional expectations that the RBI's tightening cycle is not finished, even as global central banks monitor their own rate trajectories
• Global bond yields near decade highs and an incipient CPI generalization trend in India give the RBI's MPC a compelling case for sequential rate increases as crude oil sustains above $100 per barrel

SBI's Economic Research Department — the internal economic forecasting unit of India's State Bank, the country's largest public sector lender — has published a forecast calling for two 25 basis point repo rate hikes from the Reserve Bank of India at its October and December 2026 Monetary Policy Committee meetings. The ERD's rationale centers on two specific macro conditions: crude oil prices sustaining above $100 per barrel, which directly feeds into India's import bill and CPI through fuel and transportation costs, and CPI inflation showing what SBI describes as 'incipient signs of generalisation' — a pattern where price increases in headline components begin spreading to core and services categories, making disinflation harder to achieve.

The SBI ERD forecast carries institutional credibility beyond most external analyst calls because SBI's own balance sheet is directly affected by RBI rate decisions. As India's largest bank by assets with a dominant share of floating-rate housing and corporate loans, SBI's internal research team has strong incentives to accurately forecast the rate environment in which the bank will be operating. A forecast of two 25 bps hikes — adding 50 bps to the repo rate by year-end — would push the effective repo rate to a level not seen since the tightening cycle's peak, creating significant repricing pressures for Indian borrowers with floating-rate exposures. The banking sector broadly must recalibrate asset-liability management models to account for the higher terminal rate.

The context of global bond yields near decade highs amplifies the urgency of SBI ERD's forecast for the RBI. As US Treasury yields rise following the expected Fed hike, the yield differential between Indian government bonds and US Treasuries narrows — a condition that increases the risk of foreign portfolio investor outflows from Indian debt markets and creates rupee depreciation pressure. The RBI must weigh whether hiking rates to maintain the yield differential is necessary to defend the rupee against dollar strength, or whether rate hikes at this point risk choking domestic demand in an environment where consumer confidence is already sensitive to elevated food and fuel prices. SBI's two-hike call suggests the ERD believes the RBI will prioritize inflation control and currency stability over near-term growth concerns.

Synthesized from 1 source.