SBI Research projects RBI rate hikes in October and December as crude, inflation risks mount

SBI Research expects the Reserve Bank of India to lift its policy rate by 25 basis points at its October review and by another 25 basis points in December, citing mounting inflation risks and a sharp rise in crude oil prices.

The call, outlined in the firm's latest Ecowrap report, is framed as independent of any move by the US Federal Reserve, mirroring the RBI's approach in 2022. The report argues for the two increases in quick succession.

Crude oil has recently crossed USD 100 a barrel amid heightened geopolitical uncertainty. SBI Research's quantile regression model suggests crude could touch USD 123 a barrel over the next 15 days at the 60th percentile, while an alternative model points to an average of USD 105 a barrel over the same period. The higher-quantile figure reflects a worst-case stress scenario rather than a baseline expectation, the report notes.

The research also points to signs that inflation is broadening. The number of commodities accounting for 90 per cent of the CPI's weighted contribution rose from 22 in January 2026 to 53 in July. In sectors including crude petroleum and natural gas, beverages, pharmaceuticals and electronics, input costs are climbing faster than output prices, leaving room for a larger pass-through to consumer prices.

Waiting for the full pass-through to show up in CPI would risk acting only after inflation has become entrenched, the report argues, making a case for a rate increase in October.

On the bond market, SBI Research expects pressure on Indian government yields to persist. With the benchmark 10-year yield already above 7 per cent, it sees a further rise of 10-15 basis points, taking it towards 7.15 per cent or higher, as costlier oil feeds imported inflation, exchange-rate pressure and uncertainty.

The report also views the current surplus liquidity in the banking system as likely temporary, expecting it to taper over the next three to four months as credit demand strengthens and festive-season demand picks up.