Leading economists on Thursday, 22 October maintained their outlook for a back-to-back repo rate hike in December, after the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) minutes for October revealed a sharply hawkish tone, signalling further policy tightening amid broadening inflationary pressures and a weakening rupee.

What the SBI Research Report Projects

A report by SBI Research said it continues to project a 50 basis points (bps) rate hike in December. The report outlined two possible paths: a 'plain vanilla' 50 bps repo rate increase, or an 'exotic' structure comprising a 25 bps repo rate hike combined with a 25 bps asymmetric widening of the Liquidity Adjustment Facility (LAF) corridor — with the Marginal Standing Facility (MSF) rising to 6.25 per cent and the Standing Deposit Facility (SDF) at 5.50 per cent.

Dr Soumya Kanti Ghosh, Group Chief Economic Adviser at State Bank of India, said: 'The broadening of inflationary pressures, alongside persistent rupee weakness, calls for close monitoring by the RBI and a calibrated policy response to contain inflation risks and reinforce monetary transmission.' He added: 'We expect the peak inflation rate by November below 6.5 per cent and with these elevated levels, such generalisation warrants close monitoring by the RBI.'

Hawkish Pivot in MPC Minutes

According to Radhika Rao, Senior Economist and Executive Director at DBS Bank, the October MPC minutes reflected a 'hawkish pivot', with the repo rate raised by 25 bps and the monetary policy stance shifted to 'calibrated tightening'. 'Members cited rising inflationary pressures and firm growth as reasons behind the 25 bps hike,' she noted.

Rao further explained that two external MPC members emerged as the most hawkish, emphasising broadening inflation risks and calling for pre-emptive action. Two others were characterised as mildly hawkish or neutral, supporting only incremental hikes and explicitly rejecting signals of a prolonged tightening cycle. RBI Governor Sanjay Malhotra highlighted emerging signs of inflation becoming more generalised, and with inflation set to rise to 6 per cent in the fourth calendar quarter, Rao said 'the door remains open for a back-to-back hike in December.'

Currency and Bond Market Reaction

In financial markets, bond yields stayed elevated even as the rupee strengthened, aided by forex regulatory measures gaining traction. The rupee has appreciated by approximately 1.5 per cent against the US dollar this month, defying typical headwinds from rising oil prices and subdued global risk sentiment, while FX forward premiums remain elevated.

Inflows linked to the country's biggest-ever equity IPO also contributed to foreign exchange gains, according to economists. Notably, the currency is currently showing limited sensitivity to external developments, while the bond market is expected to remain under pressure as concerns over oil supply return to the fore.

Why This Matters

The RBI's October rate action and the hawkish tilt in the MPC minutes come amid a challenging global macro environment — rising crude oil prices, a strong US dollar, and sticky domestic food inflation. This is the latest in a series of tightening moves by the central bank aimed at anchoring inflation expectations within the 2–6 per cent target band. A further December hike, if realised, would mark one of the more aggressive near-term tightening sequences in recent RBI history. Markets and borrowers alike will now scrutinise upcoming inflation prints closely for signs of whether the peak is near.