SBI chief expects 50 bps RBI rate hike in December, then pause

State Bank of India Chairman C.S. Setty said on Monday, October 26, 2026, that the Reserve Bank of India could raise its policy repo rate by another 50 basis points at its December meeting and then hold rates until March 31, 2027. Speaking at a banking and financial services summit in Mumbai, he said one or two more rate hikes would likely weigh on borrowing for discretionary consumption, but that he did not expect credit demand for productive activities such as business expansion and investment to weaken.

The repo rate is the rate at which the RBI lends short-term money to banks. When it rises, banks usually pay more for funds and pass part of that cost on to borrowers through higher loan rates, especially on loans linked to external benchmarks such as many home loans.

The RBI has said its next decisions will be either a hike or a pause, depending on how inflation and growth develop. Price pressures have broadened. High crude oil prices, costlier food and a weaker rupee have pushed both retail and wholesale inflation up over recent months. The central bank's own forecast for inflation in the year ending March 2027 is 5.2%, above its medium-term target of 4%. That gap is the main reason bankers and economists now expect further tightening rather than relief.

Setty's distinction between types of credit is important for businesses. Loans for cars, consumer goods and personal spending tend to respond quickly to higher rates because households can delay such purchases. Loans for factories, working capital and infrastructure depend more on order books and growth prospects. Setty pointed to the projected growth rate of 7.1% for the current year as support for continued lending to productive sectors.

SBI Research laid out two routes the RBI could take. The first is a straight 50 basis point increase to 6.00%, with the marginal standing facility at 6.25% and the standing deposit facility at 5.75%. The second is a 25 basis point repo hike to 5.75% combined with an uneven widening of the liquidity corridor, which would leave the marginal standing facility at 6.25% and the standing deposit facility at 5.50%. The standing deposit facility is what banks earn on surplus cash parked with the RBI; the marginal standing facility is its emergency overnight lending rate.

Short-term: Borrowers with floating-rate loans could see higher interest costs if the RBI raises rates in December. Earlier this month, Setty said deposit rates were likely to stay unchanged for two to three months because the banking system holds surplus cash, so savers may not see an immediate gain. Banks may review deposit rates later if loan growth stays strong.

Long-term: A repo rate near 6% would make borrowing for consumer purchases costlier into 2027 and could slow demand in rate-sensitive sectors such as autos, consumer durables and unsecured personal loans. If Setty's view proves right, lending for investment would hold up better, which matters for capital spending and jobs.

Who is affected: Home, car and personal loan borrowers; small businesses that rely on bank credit; depositors waiting for higher fixed deposit rates; and banks whose margins depend on the gap between what they pay depositors and what they charge borrowers.

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