Borrowers with home, car, education or other floating-rate loans may need to prepare for a possible increase in their monthly repayments. According to an SBI Research report, the Reserve Bank of India (RBI) could raise the repo rate by 25 basis points in October 2026 amid concerns over rising crude oil prices and inflationary pressure.
The report also projects the possibility of another 25-basis-point increase in December. If both forecasts materialise, the repo rate could rise by a cumulative 50 basis points by the end of December.
However, borrowers should note that these are projections from SBI Research and not an official announcement from the RBI. The final decision on interest rates will be taken by the RBI's Monetary Policy Committee (MPC) after assessing inflation, economic growth and other domestic and global factors.
SBI Research Forecasts Possible Rate Hike in October
According to SBI Research's Ecowrap report, the RBI may consider increasing the policy repo rate by 25 basis points in October. A basis point is equal to one-hundredth of a percentage point, meaning a 25-basis-point increase translates into a 0.25 percentage-point rise.
The report further expects that another 25-basis-point hike could follow in December. Together, the two increases would amount to 50 basis points, or 0.50 percentage points.
For borrowers, the key question is whether banks would pass on such an increase to lending rates and how quickly that would happen.
Why Are Interest Rate Concerns Growing?
One of the major factors highlighted in the report is the sharp movement in international crude oil prices amid heightened tensions in the Middle East.
Crude oil prices have moved above $100 per barrel, according to the report. Persistently expensive oil can create inflationary pressure in an oil-importing economy such as India because higher energy costs can eventually affect transportation, manufacturing and the prices of several goods and services.
If crude remains elevated for an extended period, controlling inflation could become more challenging for policymakers.
Inflation Could Rise in October and November
SBI Research has also warned that inflation could reach 6.5% or higher during October-November if crude oil prices continue to remain elevated.
Inflation is an important consideration for the RBI while deciding monetary policy. When price pressures become persistent, higher policy rates are one of the tools a central bank can use to moderate demand and keep inflation expectations under control.
Nevertheless, an SBI Research forecast should not be treated as confirmation that the RBI will raise rates. Actual policy action will depend on economic conditions and data available to the MPC at the time of its meeting.
How Could a Repo Rate Hike Affect Your Loan EMI?
The repo rate is the policy rate at which the RBI lends short-term funds to eligible banks against approved securities. Changes in this rate can influence borrowing costs across the financial system.
If the RBI raises the repo rate and banks subsequently increase their applicable benchmark-linked lending rates, borrowers with floating-rate loans could face higher interest costs.
Depending on the terms of the loan, a lender may respond to a higher interest rate by increasing the monthly EMI, extending the remaining loan tenure, or using a combination of both.
The exact impact will not be identical for every borrower. It will depend on factors such as the outstanding principal, remaining repayment period, current interest rate, type of benchmark and the lender's reset rules.
Borrowers with fixed-rate loans may not experience the same immediate impact, subject to the specific terms and conditions of their loan agreement.
What Should Existing Borrowers Do?
People currently repaying loans should first check whether their loan carries a fixed or floating interest rate. Floating-rate borrowers can also review the benchmark to which their loan is linked and find out when the next interest-rate reset is due.
It may be useful to ask the lender for an illustration showing how a 0.25 or 0.50 percentage-point increase could affect either the EMI or remaining tenure. This can help borrowers plan their monthly household budget before any change actually takes effect.
Those considering a new loan should compare the interest rate, benchmark, processing charges, reset mechanism, prepayment conditions and overall repayment cost across multiple lenders instead of choosing a loan solely on the basis of the initial EMI.
Borrowers Should Watch the RBI's Official Decision
The possibility of higher interest rates has become important for households already managing long-term loans. Even a relatively small change in lending rates can increase the total interest outgo, particularly on large home loans with many years left to run.
For now, though, a repo rate increase in October remains a forecast attributed to SBI Research rather than a confirmed RBI decision. Borrowers should therefore avoid making financial decisions solely on the basis of projections and watch the RBI's official monetary policy announcement for the final rate decision.
