RBI repo rate hike: The Reserve Bank of India (RBI) announces its monetary policy decisions at its bi-monthly Monetary Policy Committee (MPC) meetings and policy repo rate remains as the central bank's most crucial event.

While markets are split on whether the RBI will change the repo rate in the next MPC meeting scheduled between June 3 and 5, a report by SBI Research has offered an alternative to manage pressure on the rupee without raising the repo rate.

It is pertinent to note that currently, the RBI has kept the policy repo rate at 5.25 per cent.

What is the alternative option offered by the SBI report?

According to the SBI Research report, the central bank does not need to raise the repo rate in the upcoming monetary policy to manage pressure on the rupee instead use short-term interest rate tools and liquidity measures.

It also argued against a repo rate hike even as global uncertainties and elevated crude oil prices continue to create pressure on currencies and financial markets.

"So should there be repo rate hike? NO!" the report said, while suggesting that the central bank should maintain a data-dependent approach and continue with its current policy stance.

Report cites RBI's steps to address exchange rate volatility in 2013

The report cited the example of July 2013, when the RBI took steps to address exchange rate volatility by raising the Marginal Standing Facility (MSF) rate by 200 basis points to 10.25 per cent and recalibrating the policy corridor to 300 basis points above the repo rate of 7.25 per cent.

During that period, the reverse repo rate was kept unchanged at 6.25 per cent.It stated "Our call is along 'Hold the rates' with a data driven future dependency".

SBI Research noted that wider interest rate corridors can increase interbank market activity while reducing dependence on central bank liquidity facilities.

The report also suggested that the RBI could use tools such as "Operation Twist," under which short-term rates can rise while long-term rates remain relatively lower.

According to the report, such measures can help address market pressures and support the rupee without affecting broader borrowing costs across the economy.

The report also said it expects India's real GDP growth for the fourth quarter of FY26 to be around 7.2 per cent, while full-year FY26 GDP growth is projected at 7.5 per cent.