Home loan borrowers may get a small break in December. SBI Research has changed its forecast for the Reserve Bank of India’s next move, and the new call is gentler than the one it made just weeks ago. Instead of a sharp 50 basis points hike in the repo rate, the bank’s research arm now expects the central bank to go for a smaller 25 basis points increase when its monetary policy committee meets from December 2 to 4.
The revision matters for borrowing costs across the economy. A 25 basis points hike would take the repo rate to 5.75 percent from the current 5.50 percent, and SBI Research says there is a 50 percent chance that this could also be the peak of the current tightening cycle.
A smaller hike than feared
Only last month, the RBI had raised the repo rate by 25 basis points to 5.50 percent, its first increase in nearly four years. SBI Research itself had earlier pencilled in a 50 basis points hike for December. That call has now been revised down.
The reason, according to the report, is that the pressures which pushed the RBI to tighten are starting to ease. Inflation remains above the central bank’s comfort zone, but crude oil prices are softening and the rupee has steadied. Foreign investors have also returned, with inflows of around 7.65 billion dollars into Indian markets since November 6.
SBI Research has pegged growth in the July to September quarter at around 7.8 percent, higher than the RBI’s own estimate of 7.2 percent.
Why crude oil is the swing factor
Oil is doing much of the heavy lifting in this softer outlook. Brent crude, which traded near 95 dollars a barrel earlier this week, could fall to around 70 dollars a barrel by 2027, according to SBI Research, as tensions between the United States and Iran ease and Middle East supplies rise.
Crude prices have already fallen by around 11 percent since the US elections, and in the near term SBI expects Brent to average around 87 dollars a barrel. For India, which imports most of its crude, cheaper oil means lower import bills, a narrower trade gap and less pressure on the rupee and on inflation.
Inflation still above 6 percent, but easing ahead
The softer rate call does not mean inflation is beaten. Retail inflation rose to 6.09 percent in October, up from 5.54 percent in September, according to data released by the Ministry of Statistics and Programme Implementation on November 12. It was the first time in two years that inflation crossed the RBI’s upper tolerance limit of 6 percent.
Food prices did most of the damage. Food inflation jumped to 8.94 percent in October from 7.74 percent in September, driven by higher vegetable prices. Core inflation, which strips out food and fuel, also edged up to 4.75 percent from 4.60 percent.
SBI Research expects inflation to stay above 6 percent in November as well, before decelerating. The RBI targets inflation at 4 percent, with a tolerance band of 2 to 6 percent. The October reading is the last inflation data the RBI will have before its December meeting, which makes the easing crude and rupee picture all the more important to its decision.
What it means for your home loan
For borrowers, the difference between a 25 and a 50 basis points hike is real money. Banks typically pass repo rate changes through to floating-rate home and personal loans, so a smaller hike means a smaller rise in monthly EMIs. If the terminal rate settles at 5.75 percent, borrowers may face only one more modest increase in this cycle.
What other brokerages expect
SBI is not alone in expecting more hikes, though views differ on how far the RBI will go. Citi expects the central bank to raise rates by 25 basis points each in December and February, while Morgan Stanley sees a longer tightening cycle stretching to April 2027. Goldman Sachs expects November inflation to rise further to 6.4 percent.
FAQs
How much will the RBI raise rates in December?
SBI Research now expects a 25 basis points hike, revised down from its earlier call of 50 basis points. That would take the repo rate to 5.75 percent.
When does the RBI’s monetary policy committee meet next?
The next meeting is scheduled for December 2 to 4, 2026. The October inflation reading of 6.09 percent is the last retail inflation data available to the committee before that meeting.
Why is SBI Research less worried about inflation now?
The rupee has steadied below 94 to the dollar, foreign inflows of about 7.65 billion dollars have returned since November 6, and SBI expects Brent crude to fall towards 70 dollars a barrel by 2027.
Will home loan EMIs rise in December?
Most likely by a small amount if the RBI hikes by 25 basis points, as banks pass repo changes to floating-rate loans. But a smaller hike means a smaller EMI increase, and SBI Research sees a 50 percent chance that 5.75 percent could be the peak rate of this cycle.
