More Stories

Informist, Friday, Sept. 11, 2026

 

NEW DELHI – State Bank of India is strongly advocating that the Reserve Bank of India's Monetary Policy Committee raise repo rate by 50 basis points this calendar year, considering the volatile geopolitical situation and rising inflation. The largest state-owned bank has recommended a 25 bps rate hike in the upcoming October meeting, followed by another 25 bps in the Monetary Policy Committee's meeting in December. A rate hike of 50 basis points would mean the repo rate will be raised to 5.75% from the current 5.25%.

 

"Our rate hike call is agnostic to August CPI inflation print that could come around 4.8-4.9%," according to the SBI Research's Ecowrap. "If oil prices remain at high levels, inflation print for October and November should move towards 6.5% or higher."

 

The recent re-escalation of the war in West Asia has caused crude oil prices to soar to the $100 per barrel mark again. Currently, brent crude oil futures for November contract is trading at $105 per barrel. Economists at SBI are estimating crude oil prices to reach $123 per barrel in the next 15 days. "It becomes important to assess the potential persistence and magnitude of the ongoing upward price movement," they said. The crude oil prices had crossed the $120 per barrel level in April in the face of the war.

 

The impact of the war is also seen in India's headline inflation and now higher retail inflation is being generalised. "The risk of further generalisation is particularly pronounced in sectors where input prices are currently rising faster than output prices, suggesting that the pass-through has not been enough on producers' side, evident in crude petroleum and natural gas, beverages, pharmaceuticals, and electronics," economists at SBI said. This could lead to greater pass-through from producer prices to final prices, especially in the case of crude petroleum and natural gas, as its imported share of 31.3%, they said.

 

CPI inflation is seen rising to a 20-month high of 4.8% in August from 4.45% in July. "With inflation already becoming less concentrated and significant cost pressures yet to be fully transmitted, waiting for the entire pass-through to materialise in CPI would risk responding after inflation has become more entrenched," the SBI report said.

 

LIQUIDITY SURPLUS

The recent swap schemes by the RBI have swelled the banks' lendable resources and created a surplus liquidity in the banking system. The total foreign currency non-resident bank deposit mobilisation has reached $127.22 billion as of Aug. 31. The realised mobilisation has been "almost twice" the market anticipation doing rounds in June when the RBI launched the dollar-rupee swap to boost the foreign exchange reserves, economists at SBI said. This resulted in the country's foreign exchange reserves touching an all-time high of $785.71 billion as of Sept. 4, according to the RBI data.

 

Economists at SBI said the mobilised amount almost matched the fund gap in the banking system. "This implies that the current spike will have a natural drawdown given the strong demand for credit supported by equally strong Q1 FY27 GDP growth figures," they said, adding that the system's liquidity is likely to level out by the end of 2026-27 (Apr-Mar) if the anticipated credit demand is met.

 

LOOKING AHEAD

SBI made a suggestion for the central bank to continue to rely on variable rate reverse repo auctions to absorb surplus liquidity. The RBI should provide a calendar for the next 2–3 months' operations with likely dates, tenors and some pre-fabricated drawdown mechanisms to meet banks' emergency needs, economists at SBI said. Economists also recommended the RBI to encourage improved participation by banks, meeting sudden liquidity requirements and able to front load growth against both proposals in the pipeline (drawdowns) as also new credit growth.

 

"RBI should continue opting for early delivery of its buy/sell swaps maturing within 3 to 12 months, but this strategy must be carried out very carefully lest the premia vault out of the comfort zone, or the curve needs to be accelerated rebalancing later as INR remains subdued against the avalanche of incoming gloom," economists said.

 

They also suggested that committed loan disbursals should see the banking system absorbing a good part of the liquidity, more so with the onset of festivals and rising corporate appetite for capacity addition. "In fact, this liquidity gush can be an anchoring factor for sustaining the rising credit demand, simultaneously having a sobering effect on yields of various security types," economists said.

 

Even with the RBI releasing the liquidity in the system in a calibrated manner, economists at SBI expect the liquidity to increase in the next week in case all the funds have not already become a part of the systemic liquidity.  End

 

US$1 = INR 95.55

 

Reported by Shweta

Edited by Deepshikha Bhardwaj

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.