RBI should hike rates by 50 bps by December, says SBI Research

SBI Research has recommended two 25-basis-point RBI rate hikes by December, citing elevated global oil and commodity prices and early signs of inflation generalisation. It warned consumer inflation could approach 6.5 per cent or higher if oil remains elevated.

New Delhi: The Reserve Bank of India (RBI) should implement a 25 basis‑point rate hike by October, followed by another 25 bps in December, as rising global oil and commodity prices and early signs of inflation generalisation warrant pre‑emptive action, a new report has said.

The report from SBI Research said its call is “agnostic” to the August CPI print, which it expects around 4.8‑4.9 per cent, but warned that if oil remains elevated, consumer inflation for October and November could move toward 6.5 per cent or higher.

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Crude recently crossed the $100 a barrel mark mark amid heightened geopolitical uncertainties, said the prices could reach $123/bbl at the over the next 15 days, the report said.

It flagged growing pass‑through risks from producer to consumer prices in sectors such as crude petroleum and natural gas, beverages, pharmaceuticals and electronics as “CPI inflation is showing incipient signs of generalisation.”

Collectively, these factors strengthen the case for a tightening totalling 50 bps, the report added.

On liquidity, the report said the recent mobilised funds as largely matching the banking system’s funding gap.

“This implies that the current spike will have a natural drawdown given the strong demand for credit supported by equally strong Q1 FY27 GDP growth figures,” the report said.

The system liquidity will level out by the end of FY27 if the anticipated credit demand is met, it added.

The report predicted that 10-year benchmark Indian yields yields should move up towards 7.15 per cent or even higher tracking multiple cues.

“We estimate the liquidity to steadily taper through the remaining part of FY27 and it ideally should stand at Rs 6 lakh crore by March 2027,” the report said.

Further, globally, yields are inching past decadal highs. A notable off-shoot is the vaulting US yields, 10 year within striking distance of 5 per cent now while 30 year has pulled back towards 5.40 per cent.