New Delhi [India], August 24 (ANI): SBI Research has flagged the possibility of a rate hike by the Reserve Bank of India (RBI), saying the latest Monetary Policy Committee (MPC) minutes have turned more hawkish, even as Governor Sanjay Malhotra has maintained a cautious and data-dependent approach.
In its latest Ecowrap report, SBI Research said the difference between the MPC minutes, the monetary policy statement and the Governor's comments has created uncertainty for markets over the future path of interest rates.
"The latest MPC minutes appear more hawkish, keeping inflation risks and the possibility of further tightening in focus while the Governor's statement sounds considerably more patient and data-dependent," the report said.
SBI Research said the hawkish tone of the MPC minutes has strengthened in recent months. In terms of macro tones, the report said that when the Governor's statement is taken as 1, the MPC minutes increased from 1.76 in June 2026 to 1.82 in August 2026, showing a rise in hawkishness.
The divergence was more visible on issues related to policy, interest rates, inflation and prices. The MPC minutes gave greater importance to risks that could influence future rate decisions, while the Governor focused more on growth and financial conditions.
"The policy dilemma for markets is therefore increasingly a 'chalk or cheese' problem," SBI Research said, adding that markets will have to assess whether the hawkish tone of the minutes means an October rate hike remains possible or whether the Governor's cautious approach will continue.
The report said "the window of a rate hike(s) has now opened up", although the decision remains finely balanced due to both global and domestic factors.
On the global front, SBI Research said the US economy remains resilient, supported by consumer spending and investment in artificial intelligence. However, weaker employment and high borrowing costs linked to debt could pose risks.
The report said the US Treasury's decision to double buyback operations for longer-dated securities to USD 4 billion per operation from September 9 could help ease pressure on long-term yields.
A US Federal Reserve rate cut in September appears unlikely, noting that a bond buyback programme and a rate hike would be difficult to pursue together. It added that higher crude oil prices and geopolitical tensions could keep inflation risks elevated.
Domestically, uneven monsoon conditions remain a concern. The nationwide rainfall deficit was around 13 per cent, while several major foodgrain-producing states, including Bihar, Andhra Pradesh, Punjab and Karnataka, continued to face significant deficits. Of 741 districts, 351 had received deficit or large-deficit rainfall.
The report said Skymet had lowered its 2026 monsoon forecast to 85 per cent of the Long Period Average, with a 70 per cent probability of drought, while El Nino conditions had become firmly established.
SBI Research projected August CPI inflation at 4.7 per cent and said inflation could rise above 6 per cent in October and November before easing to around 5 per cent in the fourth quarter of FY27.
Against this backdrop, the research house said fiscal and rural-economy measures could be a better way to address monsoon-related risks than monetary tightening. It also pointed to an around 60 per cent fall in person-days generated under the newly launched VB-G RAM G programme in July-August 2026.
"An expansionary fiscal policy through higher allocation through VB-G RAM G but possibly a tighter monetary policy (through rate hikes) may be difficult to comprehend together," SBI Research said.
The report concluded that the monetary policy outlook remains finely balanced, with the hawkish MPC minutes keeping the possibility of an RBI rate hike alive, while weak monsoon conditions and the need to support rural demand argue for caution. (ANI)
SBI Research flags possibility of RBI rate hike as MPC minutes turn increasingly hawkish
