Archive · 10 Oct 2026
SBI Capital Sees Further RBI Rate Hikes as Inflation Persists
SBI Capital Markets thinks India’s central bank may raise interest rates further to control rising prices.
It expects increases to happen gradually, though a larger increase in December 2026 is possible.
The central bank’s next decisions will depend partly on inflation figures for September and October.
Prices may reach their highest point in late FY27 and then ease, but this is not certain.
Strong economic growth has been recorded, but higher borrowing costs and weaker rural demand could affect spending.
High oil prices and conflicts around the world could also keep prices up.
Government bond yields have risen and may stay high until these pressures ease.
Higher rates may help banks’ margins in the near term.
SBI Capital Markets expects the RBI to raise its repo rate by 75–100 basis points during the current tightening cycle.
A gradual pace is considered most likely, but the report says a larger hike in December 2026 remains possible; September and October inflation readings will matter.
The RBI recently raised the repo rate by 25 basis points and shifted its stance from “Neutral” to “Calibrated Tightening.”
Retail inflation is expected to peak in Q3 FY27, while strong first-quarter GDP growth reached 7.8% year-on-year.
The report expects elevated bond yields and near-term support for bank margins, while warning that borrowing costs, weak rural sentiment and high oil prices could weigh on demand and inflation.
- Who
- SBI Capital Markets issued the assessment; the Reserve Bank of India sets the repo rate.
- What
- The report forecasts 75–100 basis points of repo-rate increases during the current cycle, with a possible larger hike in December 2026.
- When
- The assessment concerns the current monetary tightening cycle; September and October inflation readings are relevant to the RBI’s decisions.
- Where
- India.
- Why
- Inflationary pressures are expected to persist, influenced by domestic trends, global commodity prices and geopolitical developments.
Inflation and tightening risks
Growth and easing prospects
Interest-rate outlook
Inflation and tightening risks
Persistent inflation could require further repo-rate increases, and a larger December 2026 hike remains possible.
Growth and easing prospects
SBI Capital Markets sees gradual increases as the most likely path and expects the monetary cycle could reverse in Q1 FY28, depending on growth and inflation.
Economic conditions
Inflation and tightening risks
Higher borrowing costs, subdued rural sentiment and weaker kharif sowing could weaken consumption; high oil prices and geopolitical conflicts could keep inflation elevated.
Growth and easing prospects
GDP grew 7.8% in Q1 FY27, with manufacturing output up 9.2% and gross fixed capital formation up 11.9%.
Bond and banking outlook
Inflation and tightening risks
Bond yields may remain elevated amid inflation concerns, monetary tightening and global financial uncertainty.
Growth and easing prospects
Higher rates may support bank margins in the near term, and bonds could attract more investor interest in FY28 if inflation eases and policy becomes more accommodative.
- Forecast rate increases
- 75–100 basis points in the current cycle, according to SBI Capital Markets.
- Possible larger hike
- A larger hike in December 2026 cannot be ruled out.
- Recent RBI action
- A 25-basis-point repo-rate hike and a shift from “Neutral” to “Calibrated Tightening.”
- Inflation outlook
- Retail inflation may peak in Q3 FY27; the report expects it to remain below 5% year-on-year beyond Q1 FY28.
- GDP growth
- Real GDP grew 7.8% year-on-year in Q1 FY27, compared with market expectations of 7.1%.
- Bond yields
- Benchmark 10-year government bond yields rose around 70 basis points in calendar year 2026.
- Oil price risk
- The report cited crude oil prices hovering around $100 per barrel as a potential source of continued inflation.