12 September,2026 10:20 AM IST | New Delhi | mid-day online correspondent
Representational Image. File pic.
With elevated crude oil prices over USD 100 per barrel amid the renewed tensions between US and Iran and concerns of a broader inflationary pressure, an SBI Research report has said the Reserve Bank of India (RBI) should look to increase its key lending rate the repo rate by 25 basis points during its next Monetary Policy Committee meeting scheduled in October, reported news agency PTI.
The apex bank had kept the rates unchanged for the fourth consecutive time in its August Monetary Policy Committee (MPC) meeting, maintaining the repo rate at 5.25 per cent. The next MPC meeting headed by the RBI Governor Sanjay Malhotra, is scheduled for October 5-7, 2026.
"Just one month back, there were practically not much talks of rate hikes, and most (if not all) expected a 'prolonged pause'. But the situation has changed drastically since then," SBI Research report said.
The report said its call for a rate hike is independent of any forthcoming US Federal Reserve action, while noting that crude prices that had earlier eased to USD 80 per barrel following the pause in the military action between US and Iran have recently crossed USD 100 per barrel amid heightened geopolitical uncertainties.
The crude oil prices on Friday had hit a four-month high, touching over USD 108 per barrel, a level it had reached in May earlier, before easing 3.19 per cent to USD 104.2 per barrel.
According to SBI research, with the tensions in the Middle East escalating, the crude prices could reach USD 123 per barrel over the next 15 days.
"Now, we strongly advocate a 25-bps rate hike in the upcoming October policy (followed by another in December in quick succession), factoring in the myriad evolving undershoots...," the report said. It added that the push for a rate hike is agnostic to the August CPI inflation print that could come around 4.8-4.9 per cent.
The research report noted that if the oil prices remain at high levels, the inflation print for October and November could be around 6.5 per cent or higher, noting that the consumer price index (CPI) retail inflation is showing early trends of becoming more broad-based.
"With inflation already becoming less concentrated and significant cost pressures yet to be fully transmitted, waiting for the entire pass-through to materialise in CPI would risk responding after inflation has become more entrenched. Restaurant inflation rose sharply as onions, edible oil, and LPG became more expensive," it said.
It noted that the risk of further generalisation is particularly pronounced in sectors where input prices are currently rising faster than output prices, suggesting that the pass-through has not been enough on the producer's side, which is evident in crude petroleum and natural gas, beverages, pharmaceuticals, and electronics.
The report noted that the FCNR (B) inflows have swelled the banks' lendable resources while creating a surplus liquidity in the banking system.
"By design or by fluke, the mobilised amount of USD 127 billion almost matches the fund gap in the banking system. This implies that the current spike will have a natural drawdown given the strong demand for credit supported by equally strong Q1 FY27 GDP growth figures," the report said.
It expects the system liquidity to level out by the end of the fiscal year if the anticipated credit demand is met, it said.
(With inputs from PTI)
