Repo Rate: Another major shock likely in December; SBI Research predicts the extent of the interest rate hike..

The Reserve Bank of India (RBI) has raised the repo rate by 25 basis points, bringing the interest rate to 5.50 percent. A recent report by SBI Research suggests that this is just the beginning, with the real impact expected in December. The report indicates that the RBI might hike the repo rate by another 50 basis points during the Monetary Policy Committee (MPC) meeting scheduled for December.

SBI Research notes in its report that this 50-basis-point hike would largely depend on global conditions. It suggests that since global circumstances could soon become volatile, the RBI should opt for a single, significant rate hike rather than a series of smaller increases.

**Raising Repo Rate to 6% is a Good Option**

Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at the State Bank of India (SBI), stated, "Raising the repo rate to 6 percent by December could be the best option." Reacting to the MPC's unanimous decision to hike the repo rate by 25 basis points to 5.50 percent, the report observes that future policy choices are essentially limited to either raising rates or keeping them steady, depending on evolving circumstances.

**RBI Moving Towards Tighter Monetary Policy**

Dr. Ghosh remarked that an analysis of the October policy meeting clearly shows the RBI has moved beyond mere caution and is now distinctly leaning towards monetary tightening. The central bank has raised its GDP growth forecast for the 2027 fiscal year by 40 basis points to 7.1 percent and increased its retail inflation projection by 20 basis points to 5.20 percent.

Inflation Could Peak in November 2026
Based on an analysis of the RBI's past policy cycles, SBI has indicated that the pace of interest rate hikes is directly determined by the duration and severity of inflationary pressures. The report projects that retail inflation could reach a peak of approximately 6.8% in November 2026. Consequently, the repo rate is also highly likely to touch a peak of 6.0%. However, the magnitude and pace of rate hikes could vary significantly depending on shifts in inflation trends; the speed of the tightening cycle is equally crucial.

In its report, SBI Research states that India requires a clear AI policy to facilitate capital flows, as the likelihood of such flows remains low without a well-defined policy. Additionally, the report emphasizes the need for protective measures for the rupee, noting that it is approaching a concerning benchmark level.

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