The Reserve Bank of India may not be done with rate hikes yet. Barely two weeks after the RBI raised its benchmark repo rate to 5.50 per cent, SBI Funds Management has warned that the central bank could need to push the rate all the way to 6.25 per cent to bring inflation under control.
The warning comes in the fund house’s October 2026 Market Outlook report, which argues that the RBI’s latest 25 basis point hike, delivered on October 7, will not be enough on its own. The assessment has found a fresh audience this week because the latest inflation numbers have come in hotter than expected.
What SBI Mutual Fund actually said
SBI Funds Management, the asset management arm of the country’s largest bank, kept its message blunt. “From a real rate perspective, policy rates may need to move to at least 6.25% to enable a real rate around 1%,” the report stated.
In plain language, that means another 75 basis points of rate increases from the current 5.50 per cent level, spread over upcoming policy meetings. The report does not pin down a timeline. It also warned that the near-term path for policy rates is now “either a hike or hold, with rate cuts being off the table.”
One more line in the report deserves attention. SBI MF cautioned that surplus liquidity in the banking system could blunt the impact of rate hikes, which means the RBI will also need to keep a close eye on liquidity management for its tightening to actually bite.
Why the inflation numbers worry Mint Street
The call for tougher action follows government data released last week showing India’s retail inflation climbed to 5.54 per cent in September, up from 4.83 per cent in August. Wholesale inflation was even more alarming, accelerating to 11.39 per cent from 9.92 per cent.
The RBI itself is projecting inflation at 6 per cent for the third quarter of FY27 and 5.7 per cent for the fourth quarter. SBI MF flagged a real risk that elevated crude oil prices, potential food inflation and strong domestic demand could push inflation above the RBI’s 6 per cent upper tolerance limit for two consecutive quarters.
“Even with the current forward estimate on CPI inflation for FY27 at 5.20%, headline CPI remains almost 120bps above the 4% target. This clearly warrants additional policy actions going forward,” the report said.
Crude oil hovering near $100 a barrel is the obvious pressure point. A weaker monsoon and ongoing El Nino conditions have also kept food prices elevated, and those costs are now seeping into wages and services, the kind of second-round effect central bankers dread.
What 6.25 per cent would mean for borrowers
For anyone with a home loan, this is the part that matters. Most floating-rate home loans in India are linked to the repo rate, so every hike eventually shows up in EMIs or loan tenures. If the repo rate climbs from 5.50 to 6.25 per cent, borrowers could see roughly 75 basis points added to their lending rates over time.
On a Rs 50 lakh, 20-year home loan, each 25 basis point increase typically adds around Rs 750-800 to the monthly EMI. A full 75 basis point move would translate to over Rs 2,000 extra per month, unless the borrower opts for a longer tenure instead.
Deposit holders, on the other hand, would have reason to smile. Banks tend to raise fixed deposit rates in a hiking cycle, so senior citizens and savers could see better returns on fresh FDs.
The December meeting is now the one to watch
The RBI’s next Monetary Policy Committee meeting is scheduled for December 2-4, and the SBI MF note has made it the most closely watched meeting in months. The October 7 decision, a unanimous 25 basis point hike that ended the rate-cutting spree, came with a shift in stance from “neutral” to “calibrated tightening”, which was already the central bank’s way of saying rate cuts are finished for now.
There is a wrinkle, though. Not everyone agrees that raising rates is the right medicine. Some economists argue that using interest rates, a demand-side tool, to fight what is largely supply-side inflation from oil and food could do more harm than good. Nuvama’s chief economist Kapil Gupta has noted that underlying demand-driven inflation remains subdued, with super-core inflation hovering below 3 per cent.
The RBI, for its part, has growth on its side of the ledger. It raised its FY27 GDP growth forecast to 7.1 per cent this month, and the IMF has also upgraded India to 7 per cent. Strong growth gives the central bank room to tighten without fearing a growth shock.
FAQs
What did SBI Mutual Fund say about the repo rate?
In its October 2026 Market Outlook, SBI Funds Management said the RBI may need to raise the repo rate to at least 6.25 per cent to contain inflation, implying another 75 basis points of hikes from the current 5.50 per cent.
Why is the RBI expected to keep hiking rates?
Retail inflation rose to 5.54 per cent in September, wholesale inflation hit 11.39 per cent, and the RBI projects inflation at 6 per cent for Q3 FY27. SBI MF warns price pressures could breach the 6 per cent upper tolerance limit for two straight quarters.
When is the RBI’s next policy meeting?
The next Monetary Policy Committee meeting is scheduled for December 2-4, when the central bank will review fresh inflation data before deciding on further rate action.
How would a 6.25 per cent repo rate affect home loans?
Since most floating-rate home loans are repo-linked, a rise to 6.25 per cent would likely push lending rates up by about 75 basis points over time, raising EMIs unless borrowers extend their loan tenures.
Are rate cuts completely off the table?
According to SBI MF, the near-term path is either a hike or a hold, with rate cuts off the table for now, given inflation is running well above the RBI’s 4 per cent target.
The bottom line is that borrowers should stop hoping for cheaper loans this year. With inflation refusing to cool and one of the country’s biggest fund houses calling for 6.25 per cent, the December policy meeting could well deliver another hike.
