December is shaping up to be the month when borrowing in India gets costlier again. SBI Research has retained its forecast of a 50-basis-point hike in the repo rate at the Reserve Bank of India’s next policy meeting, doubling down on its call even as the central bank itself has ruled out any rate cut in the near term.
The call is not a shot in the dark. It comes straight after the RBI released the minutes of its October 5-7 Monetary Policy Committee meeting, where Governor Sanjay Malhotra signalled that the era of easy money is firmly over. At that meeting, all six MPC members voted to raise the repo rate by 25 basis points to 5.50 per cent and shift the policy stance to “calibrated tightening”.
“I feel it is appropriate to change the stance to calibrated tightening, essentially signalling that rate cuts are off the table in the near term and policy action ahead can only be a rate hike or a pause,” the Governor said in the minutes, released on October 21.
How a 50 bps hike could actually look
SBI Research, in its report analysing the October minutes, laid out two ways the central bank could deliver the December hike:
- The plain vanilla route: a straight 50-basis-point increase that takes the repo rate from 5.50 per cent to 6 per cent.
- The exotic route: a 25-basis-point repo hike to 5.75 per cent, combined with a 25-basis-point asymmetric widening of the Liquidity Adjustment Facility corridor. Under this option, the Marginal Standing Facility rate would rise to 6.25 per cent while the Standing Deposit Facility rate stays at 5.50 per cent, a move aimed at keeping market functioning orderly amid global uncertainty.
The report says the Governor’s communication in the minutes showed a sharper focus on future risks and the possibility of more tightening ahead. “We continue to maintain a 50 bps rate hike in December,” it said.
Why inflation is refusing to cool
The core of the argument is that inflation is spreading, not fading. Governor Malhotra flagged clear signs that price pressures are generalising across the economy.
In terms of the diffusion index, 37 per cent of commodities in the CPI basket showed inflation above 4 per cent in August, up from just 20 per cent in March. Core inflation rose from 3.9 per cent in July to 4.2 per cent in August, while core inflation excluding precious metals stood at 2.9 per cent. The Governor cautioned that underlying inflation, excluding precious metals, is expected to move above the RBI’s inflation target in the coming months.
SBI Research added its own warning: the number of commodities accounting for 75 per cent of the CPI’s weighted contribution rose from 25 in August to 31 in September, which means price pressures are being felt across a wider range of everyday items. The report expects inflation to peak below 6.5 per cent in November.
Crude oil is not helping either. The report projects dated Brent crude prices to average around USD 110 per barrel over a 15-day forecast period, adding to the risks facing the inflation outlook.
What the RBI itself expects
The October minutes put hard numbers on the problem. Headline retail inflation is projected at 6.0 per cent in the third quarter of FY2026-27, right at the upper edge of the RBI’s tolerance band, before easing to 5.7 per cent in the fourth quarter. The committee also raised its full-year CPI inflation forecast to 5.2 per cent from 5 per cent estimated in August.
Yet the central bank is not worried about growth. It raised its GDP growth projection for FY2026-27 to 7.1 per cent from 6.7 per cent, after the economy grew 7.8 per cent in the June quarter. “There are increasing signs of generalisation of inflation,” the Governor noted, while keeping a positive assessment of economic activity driven by private consumption and exports.
Not everyone agrees on the pace
The minutes also revealed that the committee is not unanimous on how fast to tighten. While all six members supported the October 25-basis-point hike, external members Nagesh Kumar and Ram Singh favoured keeping a neutral stance instead of shifting to calibrated tightening. Deputy Governor Poonam Gupta backed a 25 bps hike, arguing that with inflation likely to hit the upper tolerance limit of 6 per cent, it was better to act early since monetary policy works with a lag.
The RBI’s next MPC meeting is scheduled for December 2 to 4, when policymakers will reassess inflation and growth before deciding whether another rate increase is warranted.
What this means for you
If SBI Research’s call plays out, home loans, car loans and business credit could get more expensive by the end of the year. Fixed deposit rates may inch up too, which is modest good news for savers. With rate cuts off the table, borrowers waiting for EMIs to fall will have to wait longer.
FAQs
When is the RBI’s next policy meeting?
The next MPC meeting is scheduled for December 2 to 4, 2026. That is when policymakers will decide whether to hike rates again.
What is the current repo rate?
The repo rate currently stands at 5.50 per cent after the MPC unanimously raised it by 25 basis points in its October 5-7 meeting.
What exactly is SBI Research predicting?
SBI Research expects a 50-basis-point hike in December, either as a straight repo rate increase to 6 per cent, or as a 25 bps repo hike plus a 25 bps asymmetric widening of the LAF corridor.
Why is inflation rising again?
Price pressures are spreading across more goods and services. The RBI notes that 37 per cent of CPI basket commodities had inflation above 4 per cent in August, up from 20 per cent in March, while crude oil remains elevated near USD 110 a barrel.
Will loan EMIs increase?
If the RBI hikes in December, banks are likely to pass it on, making home, car and personal loans costlier. Fixed deposit rates could rise as well.
The stage is set for a hawkish December. Whether the RBI goes for the full 50 points or the calibrated route, the message from Mint Street is clear: inflation comes first, and borrowers should plan accordingly.
