New Delhi, October 2 (Daily Kiran) : The balance of risks has shifted decisively in favor of a 0.25% increase in the repo rate, according to a report from the State Bank of India (SBI). This adjustment is driven by escalating inflation pressures, deteriorating global economic conditions, changing liquidity dynamics, and renewed global risks.
The Reserve Bank of India’s Monetary Policy Committee (MPC) is set to meet from October 5 to 7 to deliberate on the benchmark repo rate. The SBI report emphasizes the need for preemptive action, stating, “It would be better for us to take precautionary steps rather than lagging behind,” especially in light of geopolitical tensions and fluctuating crude oil prices.
The report also anticipates that the RBI will revise its GDP growth forecast for the fiscal year 2026-27 up by 30 basis points and inflation projections by 20 basis points. Inflation has been on the rise, with the Consumer Price Index (CPI) based inflation increasing from 4.45% in July to 4.82% in August.
Additionally, the Indian rupee continues to weaken amid a strengthening dollar index, with foreign portfolio investors (FPIs) withdrawing $4.45 billion due to consistent selling pressure since last Friday. This situation will test the RBI’s capacity to intervene effectively and curb speculative forces.
While an interest rate hike seems imminent, attention must also be given to the monsoon conditions. The 2026 monsoon has been recorded as the fourth driest since 2000, achieving only 87% of the long-term average, with 43% of districts experiencing below-normal rainfall.
The strong El Niño conditions and below-average rainfall in October could pose further risks to the production of rabi crops. Despite ample liquidity, the effective creation of liquidity remains low.
SBI’s report highlights that regulatory requirements limit banks’ ability to utilize excess deposits, despite a record influx of $143.5 billion under special swap facilities. There remains an estimated gap of ₹8.2 lakh crore in deposit creation at banks to support the projected 16% loan growth for the fiscal year 2026-27.
The report concludes that while there is no immediate cause for alarm in India, it would be prudent for policymakers and regulators to prepare for potential scenarios that may necessitate unusual interest rate measures to safeguard broader economic interests.
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