SBI Research Sees Stronger Case for 25-Bps RBI Rate Hike Amid Rising Risks

The RBI's Monetary Policy Committee is scheduled to meet from October 5 to 7 to review the benchmark repo rate and assess the country's evolving economic conditions.

According to the SBI report, heightened geopolitical tensions, potential risks from crude oil prices and shifts in global financial markets could warrant a pre-emptive policy response rather than waiting for pressures to intensify.

SBI Research has also projected upward revisions to the RBI's economic forecasts, expecting the central bank to raise its FY27 GDP growth projection by 30 basis points and its inflation forecast by 20 basis points.

The report pointed to signs that inflationary pressures are becoming broader. Consumer Price Index inflation increased to 4.82 per cent in August from 4.45 per cent in July.

The report also highlighted pressure on the Indian rupee, alongside a stronger US Dollar Index and continued selling by foreign portfolio investors. It estimated that FPIs had withdrawn around $4.45 billion since the previous Friday.

According to SBI Research, the combination of these factors will test the RBI's ability to counter speculative pressure and manage currency market volatility.

Weather conditions have also emerged as a concern. The report said the 2026 monsoon was the fourth-driest since 2000, with rainfall at 87 per cent of the long-period average and 43 per cent of districts recording deficient rainfall.

The report warned that stronger El Nino conditions, combined with the possibility of below-normal rainfall in October, could create additional risks for India's Rabi crop output.

SBI Research also examined the country's liquidity position, noting that while headline system liquidity remains elevated, the amount of liquidity effectively available for credit creation is considerably more constrained.

The report pointed to record foreign exchange inflows of $143.5 billion under a special swap facility, while noting that regulatory requirements such as the Cash Reserve Ratio, Statutory Liquidity Ratio and Liquidity Coverage Ratio limit how banks can deploy additional deposits.

SBI Research estimated that supporting projected credit growth of around 16 per cent in FY27 could leave banks facing a deposit-creation shortfall of approximately Rs 8.2 lakh crore because of regulatory requirements and other factors, including UPI and Sparsh-related requirements.

The report expects system liquidity to adjust over time and does not see an immediate need for additional intervention on that front.

At the same time, SBI Research said India does not currently face a situation requiring an emergency response. However, it suggested that policymakers and regulators should remain prepared for circumstances in which changing domestic and global economic conditions could require unconventional policy measures to protect broader economic stability.