RBI may deliver 50 bps ‘jumbo’ hike in December, repo rate seen at 6%: SBI Research

The Reserve Bank of India could raise the repo rate by another 50 basis points to 6 per cent by December, while taking additional measures to support the rupee, SBI Research said in its latest report, as it flagged rising inflation pressures and capital outflows.

The Reserve Bank of India could raise the repo rate by another 50 basis points to 6 per cent by December, while taking additional measures to support the rupee, SBI Research said in its latest report, as it flagged rising inflation pressures and capital outflows. The report said the October policy marked a shift from “watchfulness to explicit tightening”, with the RBI raising the repo rate by 25 basis points to 5.50 per cent and moving its stance from neutral to calibrated tightening. The policy options in the near term are now effectively limited to a rate hike or a pause, depending on inflation and growth conditions.

"Peak policy rate poised for 6%...our estimates now point towards a jumbo rate hike of 50 bps," SBI Research said, adding that “a 6% repo rate by December could be the best possible option.” The report expects inflation to peak at around 6.8 per cent in November 2026. Based on historical policy cycles, it estimates that the peak repo rate could be around 6 per cent, implying another 50 basis points of tightening from the current level. However, it said the pace and quantum of hikes would depend on the inflation trajectory and global conditions.

SBI Research also proposed a series of measures to support the rupee, which it said had fallen to a five-month low. The report noted that debt outflows totalled USD 2.1 billion in September as the dollar strengthened rapidly. To encourage longer-term equity inflows, it suggested a graded long-term capital gains structure for investments held beyond a reasonable period, such as three years, while maintaining some parity with domestic investors.

It also proposed widening the effective interest rate corridor by raising the Marginal Standing Facility (MSF) rate, even for a limited period, without changing the policy rate. For liquidity management, the report recommended that the RBI continue using conventional tools such as open market operations and variable rate operations instead of relying on the cash reserve ratio (CRR).

It also called for a review of the foreign currency export realisation and repatriation period, suggesting that six months should be the norm instead of the current nine months, with longer periods allowed only on a case-by-case basis. SBI Research further said the evolving situation calls for an “agile and tactile response” on the rate front, including a 50-basis-point hike at the next policy meeting or an off-cycle move if conditions worsen.

Meanwhile, the RBI has raised its FY27 GDP growth forecast to 7.1 per cent and CPI inflation forecast to 5.2 per cent. (ANI)