The Reserve Bank of India (RBI) is anticipated to implement two separate 25-basis-point rate hikes during its Monetary Policy Committee (MPC) meetings in October and December, as suggested by reports from SBI Research. This decision arises as inflation is projected to rise, alongside pressures from increased crude oil prices impacting inflation rates across various sectors.

SBI Research predicts that consumer price inflation (CPI) could exceed 6.5 per cent in the near future before declining below 6 per cent by early 2027. The report emphasises a need for the central bank to establish a policy buffer in anticipation of growing inflationary pressures. This strategy aims to fortify monetary policy amidst concerns over rising prices.

Recent data indicates that India’s retail inflation, as measured by the new Consumer Price Index, rose to 4.82 per cent in August 2026, up from 4.45 per cent in July. Inflation in rural areas is reported to be higher at 5.23 per cent compared to 4.31 per cent in urban regions, while food inflation climbed to 5.66 per cent during this period. Core inflation also significantly increased, from 3.87 per cent in July to 4.16 per cent in August.

Broader Inflationary Pressures Identified

SBI Research highlights that the inflationary pressures are becoming more widespread, affecting a broader range of goods and services. A review of CPI contributions shows that the number of commodities accounting for the majority of CPI’s weighted contribution increased from 22 in January 2026 to 51 by August 2026. The concentration of the top 25 commodities, excluding precious metals, has decreased, indicating a more diversified impact across various sectors.

According to the report, CPI inflation is projected to rise from 5.88 per cent in September to an estimated 6.70 per cent in October, before reducing to 6.19 per cent in November and 5.64 per cent in December. For early 2027, inflation is anticipated to stabilise at approximately 5.80 per cent in January and 5.90 per cent in February.

The rising global crude oil prices, exacerbated by ongoing conflicts in West Asia, introduce further inflation risks. Reportedly, dated Brent crude was trading near USD 108 a barrel, with the Indian crude basket also seeing a notable increase, moving from USD 82.04 in July to USD 109.76 in September. This surge in oil prices is anticipated to persist above $100 per barrel in the near term amid ongoing volatility.

Liquidity Management and Future Projections

SBI Research has flagged the issue of imported inflation, which is already substantially exceeding the headline inflation, registering at 7.75 per cent year-on-year in August against the headline CPI of 4.82 per cent. The report suggests that the transmission of higher crude prices into retail fuel prices has been only partial thus far, implying that domestic prices could still face upward pressure.

In terms of liquidity, the report advises caution against aggressive withdrawal by the RBI, despite an apparent surplus in the banking system. It is anticipated that surplus liquidity will diminish organically as strong credit growth absorbs available funds, with a potential balancing of system liquidity by the conclusion of FY27, contingent on anticipated credit demand.

Finally, SBI Research advocates a measured response from the RBI involving two 25-basis-point rate increases in October and December, aiming to combat the dual challenges of broadening inflation and external price pressures. A pause is recommended afterwards to reevaluate incoming data regarding inflation, crude oil dynamics, liquidity, and financial market conditions.

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