New Delhi, September 12 (Daily Kiran) : The Reserve Bank of India (RBI) is advised to increase the repo rate by 25 basis points in October and again by another 25 basis points in December, according to a recent report from SBI Research. This recommendation stems from anticipated inflationary pressures due to rising global crude oil and commodity prices.
The report forecasts that the inflation rate for August is expected to hover between 4.8% and 4.9%. However, if crude oil prices remain elevated, inflation could rise to 6.5% or higher in October and November.
SBI Research highlights that geopolitical instability has pushed the benchmark crude oil price beyond $100 per barrel, with predictions suggesting it could reach $123 per barrel within the next two weeks. Early signs of rising retail inflation are evident in sectors such as petroleum, natural gas, beverages, pharmaceuticals, and electronics, where increasing costs are being passed on to consumers.
These factors create a conducive environment for raising interest rates by up to 50 basis points. The report also addresses liquidity, noting that recently raised funds significantly alleviate the banking system’s funding shortfall.
It states, “This indicates robust credit demand, and considering the strong GDP growth figures for the first quarter of FY27, the recent surge in liquidity is expected to naturally decline.” If credit demand meets expectations, liquidity levels in the system should normalize by the end of FY27.
The report estimates that various indicators may push the 10-year benchmark Indian yield to 7.15% or higher. It concludes that liquidity is likely to gradually decrease throughout the remainder of FY27, ideally reaching around ₹6 lakh crore by March 2027.
Additionally, global yields have surged above their highest levels in the past decade, notably impacting U.S. yields, with the 10-year yield nearing 5% and the 30-year yield dropping to around 5.40%.
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