Inflation may cross 6.5%: SBI Research sees RBI hiking repo rate in October, December
SBI Research expects CPI inflation to cross 6.5% before easing below 6% in early 2027, raising concerns over broader and persistent price pressures. It has therefore called for two 25-basis-point repo rate hikes by the RBI—in October and December—followed by a pause.
- Sep 15, 2026,
- Updated Sep 15, 2026 2:47 PM IST
SBI Research expects India’s retail inflation to rise sharply in the coming months, potentially crossing 6.5% before easing below 6% in early 2027. Against this backdrop, a report sees room for the Reserve Bank of India to raise the repo rate by 25 basis points each in October and December before pausing to assess incoming data.
Retail inflation rose to 4.82% in August, up from 4.45% in July, driven by higher food prices, including onions. Wholesale price-based inflation also increased, rising to 9.92% in August from 9.78% in July, indicating persistent price pressures across the economy. The uptick in inflation comes as the RBI continues to monitor price stability and assess the trajectory of monetary policy.
Rural inflation was higher at 5.23%, compared with 4.31% in urban areas. Food inflation climbed to 5.66%, while core inflation rose to 4.16% from 3.87% in July.
SBI Research said its analysis of data through August indicates that the process of inflation becoming generalised has started. In January 2026, 22 commodities accounted for 90% of CPI’s weighted contribution. By August, this number had increased to 51. Meanwhile, the contribution of the top 25 commodities, excluding gold and silver, fell from 83% in January to 62% in August.
Why SBI expects repo rate hikes
SBI Research believes the broader inflation trend warrants a pre-emptive response. It has called for a 25-bps rate hike at both the October and December MPC meetings, followed by a pause and a review of incoming data.
The recommendation comes as the research house sees CPI inflation crossing 6.5% before falling below 6% in early 2027. Higher and increasingly broad-based inflation could make it harder for the RBI to maintain an accommodative policy stance if price pressures continue to spread.
Crude oil adds to inflation risk
A key concern is the outlook for crude oil. SBI says crude prices are expected to remain above $100 a barrel in the near term amid higher volatility. The Indian crude basket rose from $82.04 a barrel in July to $90.19 in August and $109.76 in September.
The report also points to elevated imported inflation. It rose 7.75% year-on-year in August, significantly above headline CPI inflation of 4.82%. SBI notes that the pass-through from higher crude prices remains partial until retail prices are revised, but the impact can spread through multiple channels.
Bond yields could add pressure
The rate outlook is also complicated by rising borrowing costs globally. SBI says the benchmark Indian 10-year yield, already around 7.10%, could move towards 7.25% and potentially around 7.50% if supply-side shocks and energy-security concerns worsen.
For the RBI, SBI’s assessment points to a delicate balance: act against the risk of inflation becoming entrenched while managing the impact of higher rates and borrowing costs. Its proposed two-step 25-bps hike would be followed by a pause to assess how inflation and other incoming data evolve.
SBI Research expects India’s retail inflation to rise sharply in the coming months, potentially crossing 6.5% before easing below 6% in early 2027. Against this backdrop, a report sees room for the Reserve Bank of India to raise the repo rate by 25 basis points each in October and December before pausing to assess incoming data.
Retail inflation rose to 4.82% in August, up from 4.45% in July, driven by higher food prices, including onions. Wholesale price-based inflation also increased, rising to 9.92% in August from 9.78% in July, indicating persistent price pressures across the economy. The uptick in inflation comes as the RBI continues to monitor price stability and assess the trajectory of monetary policy.
Rural inflation was higher at 5.23%, compared with 4.31% in urban areas. Food inflation climbed to 5.66%, while core inflation rose to 4.16% from 3.87% in July.
SBI Research said its analysis of data through August indicates that the process of inflation becoming generalised has started. In January 2026, 22 commodities accounted for 90% of CPI’s weighted contribution. By August, this number had increased to 51. Meanwhile, the contribution of the top 25 commodities, excluding gold and silver, fell from 83% in January to 62% in August.
Why SBI expects repo rate hikes
SBI Research believes the broader inflation trend warrants a pre-emptive response. It has called for a 25-bps rate hike at both the October and December MPC meetings, followed by a pause and a review of incoming data.
The recommendation comes as the research house sees CPI inflation crossing 6.5% before falling below 6% in early 2027. Higher and increasingly broad-based inflation could make it harder for the RBI to maintain an accommodative policy stance if price pressures continue to spread.
Crude oil adds to inflation risk
A key concern is the outlook for crude oil. SBI says crude prices are expected to remain above $100 a barrel in the near term amid higher volatility. The Indian crude basket rose from $82.04 a barrel in July to $90.19 in August and $109.76 in September.
The report also points to elevated imported inflation. It rose 7.75% year-on-year in August, significantly above headline CPI inflation of 4.82%. SBI notes that the pass-through from higher crude prices remains partial until retail prices are revised, but the impact can spread through multiple channels.
Bond yields could add pressure
The rate outlook is also complicated by rising borrowing costs globally. SBI says the benchmark Indian 10-year yield, already around 7.10%, could move towards 7.25% and potentially around 7.50% if supply-side shocks and energy-security concerns worsen.
For the RBI, SBI’s assessment points to a delicate balance: act against the risk of inflation becoming entrenched while managing the impact of higher rates and borrowing costs. Its proposed two-step 25-bps hike would be followed by a pause to assess how inflation and other incoming data evolve.