The Reserve Bank of India (RBI) may increase the repo rate by 75 to 100 basis points in the current rate hike cycle. This prediction is mentioned in a report from SBI Capital Markets that addresses the inflation and economic growth situation in India.
Inflation Predictions and Economic Situation
The SBI Caps report states that a gradual increase in rates is considered the base scenario, but if inflation rates remain high in September and October, a larger increase in December 2026 cannot be ruled out. The RBI Monetary Policy Committee recently raised the repo rate by 25 basis points and changed its stance from "neutral" to "constrained tightening," indicating a greater focus on controlling inflation.
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The consumer inflation rate is expected to peak in the third quarter of fiscal year 27, while wholesale price inflation may gradually decline from March 2027. Consumer price inflation is expected to remain below 5 percent in the coming years.
Economic Challenges and Risks
India's economic growth has remained strong, with real GDP increasing by 7.8 percent year-on-year in the first quarter of fiscal year 27, exceeding market expectations (7.1 percent). Production growth during this period was recorded at 9.2 percent, and gross fixed investment increased by 11.9 percent.
However, SBI Capital Markets has identified risks to consumption in the second half of fiscal year 27, which include rising borrowing costs, weak sentiment in rural areas, and a decrease in kharif crop planting. It has also warned that ongoing geopolitical conflicts and crude oil prices around $100 per barrel could maintain cost pressures.
In 2026, the yield on 10-year government bonds increased by nearly 70 basis points and is expected to remain high until geopolitical tensions ease and inflationary pressures are moderated. High interest rates are likely to support banking margins in the short term, although non-food credit growth may gradually decline by the end of fiscal year 27.
The report also points to global uncertainties, including rising yields in advanced economies and capital flows from emerging markets that have added to financial pressures.
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