SBI Research Predicts 25-Basis-Point RBI Rate Hikes in October and December Amid Rising Inflation

The Reserve Bank of India (RBI) could raise its policy rate by 25 basis points at both its October and December Monetary Policy Committee (MPC) meetings as inflationary pressures broaden and rising crude oil prices increase the risk of imported inflation, according to an SBI Research report. SBI Research expects consumer price inflation (CPI) to rise above 6.5 per cent in the coming months before easing below 6 per cent in early 2027. The research report suggested that the central bank may need to create a policy buffer against emerging inflation risks by implementing two calibrated rate increases and then pausing to assess incoming economic data.

India's retail inflation, measured under the new Consumer Price Index series, increased to 4.82 per cent in August 2026 from 4.45 per cent in July. The increase was broad-based, with rural inflation reaching 5.23 per cent compared with 4.31 per cent in urban areas. Food inflation also climbed to 5.66 per cent, while core inflation increased from 3.87 per cent in July to 4.16 per cent in August.

SBI Research highlighted the growing breadth of inflation as a particular concern for monetary policymakers. Its analysis showed that 22 commodities accounted for around 90 per cent of the weighted contribution to CPI inflation in January 2026. By August, the number of commodities contributing significantly to inflation had increased to 51. The report also noted that the contribution of the top 25 commodities, excluding gold and silver, declined from 83 per cent in January to 62 per cent in August, suggesting that inflation is becoming more widespread across the economy.

According to SBI Research's inflation projections, CPI inflation could rise from 5.88 per cent in September to 6.70 per cent in October before moderating to 6.19 per cent in November and 5.64 per cent in December. Inflation is projected to remain around 5.80 per cent in January 2027 and 5.90 per cent in February. The expected rise above the 6.5 per cent level could increase pressure on the RBI to respond through tighter monetary policy.

Higher global crude oil prices are another major source of concern. The report said dated Brent crude had touched around $108 a barrel, while India's crude oil basket increased sharply from $82.04 a barrel in July to $90.19 in August and $109.76 in September. SBI Research expects crude prices to remain above $100 a barrel in the near term, although prices are likely to remain highly volatile amid the continuing conflict in West Asia.

The rise in crude prices could have a significant impact on India's inflation outlook because the country remains heavily dependent on imported energy. SBI Research said imported inflation was already running well above headline inflation, increasing 7.75 per cent year-on-year in August compared with headline CPI inflation of 4.82 per cent. The report noted that the impact of higher crude prices has so far been only partially passed through to consumers because retail fuel prices have not fully adjusted.

The inflation risks are also being reflected in India's bond market. SBI Research said the benchmark 10-year government bond yield had moved towards 7.10 per cent and could rise further towards 7.25 per cent before potentially approaching 7.50 per cent if supply-side disruptions and energy-security concerns worsen. A sustained increase in oil prices could simultaneously put pressure on domestic inflation, the rupee and expectations surrounding the RBI's monetary policy.

Despite the surplus liquidity currently available in the banking system, SBI Research cautioned the RBI against aggressively withdrawing funds. The report expects excess liquidity to gradually decline as stronger credit growth absorbs available funds. If credit demand develops as expected, system liquidity could move towards a more balanced position by the end of FY27.

The research house warned that excessive liquidity withdrawal could create a deep deficit during the third and fourth quarters, which traditionally see stronger seasonal demand for credit and cash. It therefore suggested that the RBI should adopt a flexible approach to liquidity management and adjust its operations according to changing economic conditions.

SBI Research expects the RBI to adopt a calibrated approach in response to the emerging inflation risks. The central bank could raise rates by 25 basis points in October and again in December, followed by a pause that would allow policymakers to assess inflation, crude oil prices, liquidity, bond yields and other financial-market developments before taking any further decision.

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