RBI may need to raise repo rate to 6.25% as inflation risks persist: SBI Mutual Fund

New Delhi [India], October 18 (ANI): The Reserve Bank of India (RBI) may need to raise its benchmark repo rate to at least 6.25 per cent to contain inflation risks, according to SBI Funds Management, an assessment that has gained relevance following the latest rise in retail and wholesale inflation.
In its October 2026 Market Outlook report, the fund house said further monetary tightening could be necessary even after the RBI raised the repo rate by 25 basis points to 5.50 per cent earlier this month.
"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.
The assessment implies another 75 basis points of rate increases from the current level, although the report does not specify a timeline.
The warning comes as India's retail inflation rose to 5.54 per cent in September from 4.83 per cent in August, while wholesale inflation accelerated to 11.39 per cent from 9.92 per cent, according to government data released last week.
"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 stated.
The RBI has projected inflation at 6 per cent in the third quarter of FY27 and 5.7 per cent in the fourth quarter, reflecting continued price pressures.
SBI Funds Management warned 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.
"Accordingly, the near-term path for the policy rates is either a hike or hold with rate cuts being off the table," it said.
The fund house also cautioned that surplus banking-system liquidity could weaken the effectiveness of rate hikes, making liquidity management important for controlling inflation.
The RBI's next Monetary Policy Committee meeting is scheduled for December 2-4, when it will review fresh inflation data before deciding on further interest rate action. (ANI)