New Delhi: If inflationary pressure increases further in the coming days, the Reserve Bank of India (RBI) may once again increase interest rates. According to the latest Ecowrap report of SBI Research, RBI may increase the interest rate by 25 basis points in October and also by 25 basis points in December. In this way, the repo rate is expected to increase by a total of 50 basis points in the coming months.
SBI Research has strongly advocated an increase of 25 basis points in the next monetary policy meeting to be held in October. According to the report, considering inflation and economic risks in India, RBI's decision may be different from the stance of the US Federal Reserve.
Crude oil crosses 100 dollars, RBI's concern increased
One of the biggest challenges facing the RBI at this time is the price of crude oil. Amidst geopolitical tensions, the price of crude oil has recently crossed the level of $ 100 per barrel.
If the price of crude oil remains high for a long time, it may have a direct impact on India's import expenditure. This may create pressure to increase the cost of petrol and diesel along with transportation and other products.
According to a model by SBI Research, the price of crude at the 60th percentile may reach $ 123 per barrel in the next 15 days. In another model, the average price during the same period has been estimated to be around $ 105 per barrel.
However, the report clarified that the estimate of $ 123 per barrel does not reflect the normal situation. This is an estimate of the Worst-Case Stress Scenario, i.e. a very risky situation.
Inflation is now spreading across more things
According to SBI Research, the concern is not limited to crude oil only. Inflationary pressure is now visible in more commodities and sectors than before.
According to the analysis of the report, the number of items having 90 percent weightage in CPI i.e. retail inflation in January 2026 was 22. By July 2026, this number will increase to 53.
This indicates that inflationary pressure is now becoming more widespread. Sectors such as crude petroleum and natural gas, beverages, pharmaceuticals and electronics are also mentioned in the report.
In these sectors the cost of production, i.e. input cost, is increasing faster than the prices of finished products. In such a situation, companies may pass on some part of the increased cost to customers in future, which may have an impact on retail inflation.
The wait to see the impact in CPI may prove costly
SBI Research believes that if the RBI waits for inflation to be fully reflected in the CPI, there may be a delay in giving a policy response.
On this basis, the report is in favor of a rate increase of 25 basis points in October itself. After this, the possibility of another 25 basis point increase in December has been expressed.
However, it is important to note that these are estimates by SBI Research and not an official decision of RBI.
10 year government bond yield crosses 7%
Inflation and crude oil prices may also impact the government bond market. According to SBI Research, the benchmark 10-year government bond yield has gone above 7 percent.
According to the report, it may increase further by 10-15 basis points. In such a situation, the bond yield is likely to reach 7.15 percent or above.
India's import bill may increase due to expensive crude. This may increase pressure on the rupee, imported inflation and uncertainty in the market. These circumstances are likely to impact bond yields.
The excess cash of the banking system may also decrease.
SBI Research has also made estimates regarding the liquidity present in the banking system. At present, banks have surplus liquidity, but according to the report, this situation is not permanent.
It is likely to decrease in the next 3-4 months. A major reason for this could be the increase in credit demand and increase in demand for loans during the festive season.
As banks distribute more loans, the share of excess cash in the system will reduce.
What will be the impact on common people?
If RBI increases interest rates in October and December, its effect can be visible from borrowers to bond and stock markets.
Especially the pressure on interest rates on home loans, auto loans and other loans may increase. At the same time, increase in bond yield can also affect bond prices.
At present, the market will keep an eye on crude oil prices, upcoming inflation data and the next monetary policy meeting of RBI. SBI Research estimates that if inflationary pressure increases further, RBI may have to adopt a tough stance on interest rates.
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