What are the two options proposed by SBI Research?
Under the first, conventional option, SBI Research proposes raising the repo rate by 50 bps from the current 5.50% to 6.00%. Under this scenario, the marginal standing facility (MSF) rate would be 6.25%, while the standing deposit facility (SDF) rate would be 5.75%.
The second option combines a smaller repo rate increase with a change in the liquidity corridor. Under this proposal, the repo rate would rise by 25 bps to 5.75%, while the MSF rate would be set at 6.25% and the SDF rate at 5.50%.
This would create an asymmetric LAF corridor, with a wider gap between the repo rate and the two standing facility rates. SBI Research says such an approach could be considered amid global uncertainty and the need to maintain orderly market functioning.
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How does the LAF corridor work?
The LAF corridor helps guide short-term money-market rates around the RBI's policy rate.
The repo rate is the rate at which banks borrow funds from the RBI against eligible securities. The SDF allows banks to deposit surplus funds with the central bank, while the MSF enables eligible banks to obtain overnight liquidity at a rate above the repo rate.
Changes to these rates influence the cost and availability of short-term funds in the banking system. A conventional repo rate hike raises the benchmark policy rate more sharply, while an asymmetric corridor adjustment changes the relative pricing of liquidity absorption and emergency borrowing.
SBI Research notes that call rates are already closer to the MSF rate, a factor behind its suggestion that an asymmetric corridor could be considered. However, the report presents this as a policy option rather than a confirmed RBI plan.
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Why is SBI Research expecting tighter policy?
The report points to widening inflationary pressures and the risk of higher crude oil prices. SBI Research estimates that the number of commodities accounting for 75% of the weighted contribution to consumer price inflation increased from 25 in August to 31 in September 2026.
It expects inflation to peak below 6.5% in November, but says the broader spread of price pressures and persistent rupee weakness warrant close monitoring.
The report also flags the possibility of crude oil prices rising further amid geopolitical disruptions, including potential problems affecting Red Sea shipping routes.
The October monetary policy committee (MPC) minutes, meanwhile, indicate a more cautious outlook on easing. SBI Research says the policy debate has effectively shifted from “cut or hold” to “hold or hike”, while noting that the Governor's communication appears more hawkish than the average statements of other MPC members.
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What should markets watch next?
For banks, borrowers and fixed-income investors, the key question is whether the RBI eventually opts for a direct increase in the repo rate or adjusts the liquidity corridor alongside a smaller hike.
A higher repo rate can increase funding costs and influence lending rates, while changes in the LAF corridor can affect overnight money-market rates and liquidity management. The eventual impact will depend on the RBI's decision and how banks respond.
SBI Research continues to forecast a 50 bps repo rate hike in December, but its two proposed options illustrate that monetary tightening need not take a single form. The next MPC decision will determine whether the RBI chooses a conventional increase or a more calibrated combination of rate and liquidity measures.
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