RBI Rate Hike: The Reserve Bank of India (RBI) could raise its policy rate by 25 basis points in October and another 25 basis points in December, according to SBI Research’s latest Ecowrap report.
The research report cited increasing crude oil prices and broader inflationary pressures as key reasons behind its expectation. It also said any potential RBI rate increases could be driven by domestic economic conditions rather than being directly linked to decisions taken by the US Federal Reserve.
SBI Research Recommends Two Consecutive Rate Hikes
SBI Research has strongly supported a 25-basis-point rate increase at the RBI’s October policy meeting, followed by another hike in December.
The report suggested that the RBI could adopt an approach similar to the one it followed in 2022, when domestic economic conditions influenced monetary policy independently of the US Fed’s moves.
According to SBI Research, waiting too long could allow inflationary pressures to become more firmly established in the economy.
Rising Crude Oil Prices Raise Inflation Concerns
A major factor behind the expected rate hikes is the recent movement in international crude oil prices.
According to the report, crude prices have crossed $100 per barrel amid growing geopolitical uncertainty.
SBI Research’s quantile regression model estimates that crude oil could reach around $123 per barrel over the next 15 days at the 60th percentile. Another model puts the expected average price at approximately $105 per barrel during the same period.
However, the report clarified that higher-quantile estimates should be viewed as stress scenarios rather than the central or baseline forecast.
Higher oil prices can increase India’s imported inflation risks because the country relies heavily on imports to meet its crude oil requirements.
Inflationary Pressure Is Becoming More Broad-Based
SBI Research has also identified signs that inflationary pressures are spreading across a wider range of products.
Its analysis showed that the number of commodities responsible for 90% of the weighted contribution to the Consumer Price Index (CPI) increased from 22 in January 2026 to 53 in July 2026.
The report pointed to several sectors where input costs are rising faster than output prices. These include:
- Crude petroleum and natural gas
- Beverages
- Pharmaceuticals
- Electronics
According to the research, businesses may eventually pass some of these higher costs on to consumers.
SBI Research argued that waiting until the entire increase in input costs appears in CPI data could mean the central bank reacts only after inflation has become more deeply embedded.
This, it said, strengthens the case for an October rate hike.
Government Bond Yields Could Face More Pressure
The expected rise in interest rates could also have implications for India’s bond market.
The benchmark 10-year government bond yield has moved above 7%, and SBI Research expects additional upward pressure in the coming months.
The report estimates that the yield could increase by another 10 to 15 basis points, potentially moving towards 7.15% or higher.
Higher crude prices could contribute to this pressure through several channels, including imported inflation, exchange-rate risks and greater uncertainty in financial markets.
Banking System Liquidity May Tighten
SBI Research also expects the current surplus liquidity in India’s banking system to be temporary.
According to the report, excess liquidity could gradually decline over the next three to four months as credit demand improves.
Seasonal demand associated with the festive period could also contribute to the absorption of surplus liquidity from the banking system.
A combination of stronger credit growth and increased seasonal demand could therefore lead to tighter liquidity conditions in the months ahead.
What Could the RBI Rate Hike Mean for the Economy?
If the RBI raises its policy rate in October and December as projected by SBI Research, borrowing costs could come under renewed pressure.
Higher interest rates can influence home loans, personal loans, business borrowing and deposit rates, although the actual impact would depend on how banks and financial institutions transmit changes in the policy rate.
For the RBI, the challenge would be to balance inflation control with economic growth while responding to risks from global commodity prices and financial markets.
Bottom Line
SBI Research expects the RBI to consider two 25-basis-point rate hikes—one in October and another in December—as inflationary risks increase.
The report’s concerns centre on crude oil prices above $100 a barrel, broader input-cost pressures, potential imported inflation and tighter financial conditions.
It also expects government bond yields to remain under pressure and banking-system surplus liquidity to gradually decline as credit and seasonal demand increase.
However, these are SBI Research projections, not confirmed RBI decisions. The central bank’s actual policy stance will depend on incoming inflation, growth, liquidity and financial-market data at the time of each policy meeting.