The Reserve Bank of India may raise its repo rate by a steep 50 basis points at its December policy meeting, SBI Research said in its latest report.

The warning comes as price pressure spreads well beyond a handful of items. SBI Research said the RBI is weighing tough steps because rising costs are now showing up across the entire basket of consumer goods.

Retail inflation climbed to 5.54% in September, in line with what analysts had expected. Food inflation was the real problem. It jumped to 7.74%, driven mainly by vegetables. The report pointed to sharp increases in onion, ginger, garlic and lemon prices as the main reasons.

The pain was uneven across the country. Rural inflation rose to 6.08%, above the RBI’s tolerance level of 6%. Urban inflation was lower at 4.88%.

Why your EMI is in the crosshairs

The repo rate is the rate at which the central bank lends to commercial banks. When it goes up, lenders typically pass on higher borrowing costs to customers. For anyone carrying a home loan, car loan or personal loan, that can mean a higher monthly EMI. For families already stretched by grocery bills, it adds another pressure point.

That is why this report has drawn so much attention. A rate hike is the central bank’s most direct tool to cool demand and bring prices down, and it lands squarely on household budgets.

Two paths on the table

SBI Research laid out two main options for the RBI to fight inflation.

The first is a gradual approach. Under this path, the RBI would raise the repo rate by 25 basis points in December. It would also lift the Marginal Standing Facility (MSF) rate from 5.75% to 6%, and then to 6.25%.

The second is a bolder move. The RBI could go straight for a 50 basis point increase in the December policy. The report said this would signal strong commitment to bringing inflation under control.

Experts quoted in the report said the choice will depend on two things: how long inflation stays elevated, and how the rupee’s exchange rate moves in the coming months.

The governor’s message

RBI Governor Sanjay Malhotra has made the central bank’s position clear. Controlling inflation is the top priority, he said.

Controlling inflation is our top priority, and we will ensure that temporary supply shocks do not turn into long-term price rises.

That line matters. It suggests the central bank is trying to separate short-lived spikes in food prices from the kind of broad price increases that stick around and change how businesses and households behave.

What the forecast says

SBI Research expects retail inflation to rise to around 6.5% in the coming quarter, Q3. It expects inflation to ease to 5.6% in Q4. For the full FY27 year, it projects an average retail inflation rate of 5.3%.

The report points to several causes behind this outlook. Deficient rainfall, the El Nino weather pattern, high energy costs and rising fuel prices are all cited as reasons for the elevated forecasts.

Those are not small factors. Weather-driven food shocks can be hard to predict, and energy prices feed into transport and production costs across the economy. That is what makes the RBI’s task difficult. It has to avoid choking growth while stopping temporary shocks from becoming permanent price trends.

The December Monetary Policy Committee meeting will now be closely watched. Whether the RBI chooses the gradual path or the sharper 50 basis point move, the decision will reach every borrower, every saver and every household shopping for vegetables this winter.