RBI Likely to Hike Repo Rate by 75-100 Basis Points, Says SBI Caps Report

The Reserve Bank of India (RBI) could implement a repo rate hike of 75-100 basis points during the current monetary tightening cycle, according to a recent report by SBI Capital Markets. The assessment suggests that inflation is likely to remain elevated in the near term before potentially easing from the next financial year. While gradual rate increases remain the expected base case, the report noted that a more significant hike in December 2026 remains a possibility, depending on upcoming inflation data for September and October.The Monetary Policy Committee’s decision to increase the repo rate by 25 basis points and shift its stance to "Calibrated Tightening" indicates a heightened priority on curbing inflation. Analysts expect the policy cycle to shift in the first quarter of the 2028 financial year as the balance between economic growth and inflation evolves. Consumer price inflation is projected to peak in the third quarter of fiscal year 2027, with year-on-year trends anticipated to fall below 5 percent after the first quarter of 2028.Economic conditions remain a primary focus, with India’s real gross domestic product (GDP) recording a 7.8 percent year-on-year growth in the first quarter of fiscal year 2027, surpassing initial market expectations. However, the report cautioned that rising borrowing costs, combined with subdued rural sentiment and weaker kharif sowing, may pose risks to consumption in the second half of the year. Furthermore, the report highlighted that global uncertainty, including rising yields in advanced economies and capital outflows from emerging markets, continues to add financial pressure.Regarding the banking sector, higher interest rates are expected to support bank margins in the immediate future. Benchmark 10-year government bond yields have already climbed by approximately 70 basis points throughout 2026. These yields are expected to stay elevated until geopolitical tensions subside and inflationary pressures decrease, though the report suggests that bonds may see renewed investor interest in the 2028 financial year.