Archive · 15 Sep 2026
SBI Research Sees Two RBI Rate Hikes as Inflation Spreads
SBI Research thinks price increases in India are spreading across more goods.
It expects inflation to rise above 6.5% before easing below 6% in early 2027.
The research group wants the Reserve Bank of India to raise its key interest rate by 0.25 percentage points in October and again in December.
It then wants the bank to pause and study new economic data.
Rural areas had higher inflation than urban areas.
Food prices and underlying inflation also increased.
More commodities contributed significantly to inflation in August than in January 2026.
Higher crude oil prices could make many goods more expensive.
However, higher interest rates could also increase borrowing costs and pressure economic growth.
SBI Research expects CPI inflation to cross 6.5% before falling below 6% in early 2027.
It recommends 25-basis-point repo-rate hikes at the October and December MPC meetings, followed by a pause.
Rural inflation reached 5.23%, compared with 4.31% in urban areas, while food inflation rose to 5.66%.
The number of commodities driving 90% of CPI’s weighted contribution increased from 22 in January 2026 to 51 by August.
The Indian crude basket rose from $82.04 per barrel in July to $109.76 in September, increasing inflation risks.
- Who
- SBI Research recommended that the Reserve Bank of India consider two repo-rate increases.
- What
- SBI Research expects broader inflation and proposes two 25-basis-point repo-rate hikes, followed by a pause.
- When
- The analysis covers data through August; the proposed hikes would occur at the October and December MPC meetings, with inflation expected to fall below 6% in early 2027.
- Where
- India, including differences between rural and urban inflation.
- Why
- SBI Research says inflation is becoming more broad-based, while higher crude oil prices and imported inflation create additional risks.
Arguments for rate hikes
Risks of tighter policy
Responding to broad-based inflation
Arguments for rate hikes
SBI Research says inflation is becoming generalised and recommends pre-emptive 25-basis-point hikes in October and December.
Risks of tighter policy
The proposed hikes would increase rates and could add to borrowing costs for households, businesses, and the government.
Managing energy and imported-price pressures
Arguments for rate hikes
Higher crude prices and imported inflation could spread through the economy, making a policy response necessary if pressures persist.
Risks of tighter policy
SBI Research also says the RBI must manage rising borrowing costs and the effect of higher rates while responding to inflation.
Future policy path
Arguments for rate hikes
Two hikes could help prevent inflation from becoming entrenched before the RBI pauses to assess incoming data.
Risks of tighter policy
The report calls for a pause after December, reflecting uncertainty about how inflation and other economic data will evolve.
- Current headline CPI inflation
- 4.82% in August, according to SBI Research’s comparison.
- Rural inflation
- 5.23%.
- Urban inflation
- 4.31%.
- Food inflation
- 5.66%.
- Core inflation
- 4.16%, up from 3.87% in July.
- Proposed rate action
- Two 25-basis-point repo-rate hikes, in October and December, followed by a pause.
- Indian crude basket
- $82.04 per barrel in July, $90.19 in August, and $109.76 in September.