Retail inflation hits 4.82% in August, SBI report sees repo rate hike in October
SBI Research says the RBI could raise the repo rate by 25 basis points in October and again in December amid rising crude oil prices.
Retail inflation pressure has risen again in the country due to crude oil prices and food inflation. Retail inflation stood at 4.82 percent in August, up from 4.45 percent in July. With inflation rising for the third consecutive month, there are concerns this could now affect interest rates on loans.
According to SBI Research's "Ecowrap" report, the Reserve Bank of India could raise the repo rate by 25 basis points at the Monetary Policy Committee meeting in October. The report also says this could be followed by another 25 basis point increase in December.
If the increase happens in two stages, the repo rate, currently at 5.25 percent, could rise to 5.75 percent by December. However, this is only a projection from SBI Research, the final decision will be taken at the RBI's MPC meeting.
A rise in the repo rate could directly affect loan rates at banks and financial institutions. Interest costs on floating-rate home loans, vehicle loans and other loans in particular could rise. This could increase borrowers' monthly EMIs or extend loan repayment periods. The actual impact will depend on the bank concerned, the type of loan, the interest rate structure and the customer's loan terms.
The SBI Research report describes rising crude oil prices as a major risk to inflation. According to the report, crude oil prices have recently crossed 100 dollars a barrel. The report says that if geopolitical tensions persist, crude oil prices could rise to 123 dollars a barrel within the next 15 days. SBI Research estimates that if oil prices remain elevated for a long period, retail inflation could reach 6.5 percent or higher in October-November.
Rising crude oil prices affect transport and production costs, putting pressure on the prices of various goods and services. This could make it more challenging for the RBI to balance controlling inflation with maintaining economic growth.
The RBI's Monetary Policy Committee's next meeting is scheduled for October 5 to 7, 2026. The further decision on the repo rate will be taken at this meeting. In August, the RBI kept the repo rate unchanged at 5.25 percent for the fourth consecutive meeting. However, the changes in crude oil prices and inflation conditions since then could prove significant for the upcoming policy.
As a result, borrowers, banks, investors and ordinary customers are watching the October MPC meeting closely. The RBI's next decision is likely to be shaped by how much inflation pressure rises and at what level crude oil prices stand.
