RBI Easing Cycle Ends as Societe Generale Predicts Rate Hike Starting December 2026

Societe Generale analyst Kunal Kundu highlights that the RBI's August 2026 MPC minutes signal an end to rate cuts, with an initial 25bp policy rate hike expected in December 2026.

Minutes from the Reserve Bank of India's (RBI) August 2026 Monetary Policy Committee (MPC) meeting reveal a distinct shift toward monetary tightening. According to Societe Generale analyst Kunal Kundu, the internal deliberations reflect a significantly more hawkish inflation assessment than what was presented in the initial August 5 policy announcement. Consequently, Societe Generale views the latest MPC decision not as a temporary pause keeping room for future cuts, but as a definitive end to the policy easing cycle, setting the stage for rate increases ahead.

Hawkish Inflation Outlook and Rate Hike Schedule
Societe Generale highlights remarks by RBI Deputy Governor Poonam Gupta, who observed that space for additional monetary easing "does not seem to exist" and noted that a case for raising interest rates could emerge later in the year. Based on this trajectory, Societe Generale maintains its projection of an initial 25 basis point (bp) policy rate hike at the December 2026 MPC meeting. This is expected to be followed by another 25bp increase during either the first or second quarter of 2027 before the brief tightening cycle reaches its conclusion.

US Treasury Liquidity Boost Alters Market Expectations
In global fixed income markets, the US Department of the Treasury unexpectedly adjusted its operational schedule on Wednesday at 12:32 GMT. The department confirmed plans to double the capacity of its liquidity support buyback operations across both the 10-year to 20-year and 20-year to 30-year maturity sectors. The maximum threshold per operation will rise from $2 billion to at least $4 billion. This expanded buyback framework is scheduled to take effect on September 9 and remain active through November 4.

Foreign Exchange Dynamics and Gold Market Movements
The announcement of US bond buybacks created broad waves across foreign exchange and commodity trading desks on Thursday. The GBP/USD currency pair consolidated around the 1.3600 level during the European trading session after pulling back from its highest mark since May 11. Concurrently, EUR/USD traded just below 1.1700 following a move to its highest level since late May. Meanwhile, spot gold retreated slightly below $4,500 per ounce as dollar buyers took a breath after hawkish FOMC minutes, though lower US Treasury yields helped maintain a floor under precious metal prices.

Cryptocurrency Rebound and Altcoin Technical Outlook
Digital asset markets received a boost from the overall liquidity sentiment generated by the US Treasury's buyback update. Leading altcoins including Ripple (XRP), Solana (SOL), and Cardano (ADA) stabilized on Thursday following a positive momentum bounce. XRP held near $1.0951 after advancing 10% during the preceding session. Technical indicators suggest potential for continued upside in XRP and SOL, whereas ADA remains exposed to consolidation pressure.

What this means for you
• Across India: Potential RBI interest rate hikes starting December 2026 could lead to higher borrowing costs and increased EMIs for home and retail loans.
• For Investors: The US Treasury doubling its liquidity buyback limit from $2 billion to $4 billion impacts global yields, foreign exchange stability, and asset allocation.

Questions & Answers

1. What is Societe Generale's prediction for the RBI repo rate?
Societe Generale projects a 25bp rate hike at the December 2026 MPC meeting, followed by another 25bp increase in Q1 or Q2 2027.

2. What did RBI Deputy Governor Poonam Gupta state in the MPC minutes?
Deputy Governor Poonam Gupta stated that room for further monetary easing does not seem to exist and that a case for a rate increase could emerge during the year.

3. What changes did the US Treasury make to its liquidity buyback program?
The US Treasury announced it will double its liquidity buyback limit from $2 billion to at least $4 billion per operation for 10-year to 30-year bonds starting September 9.

4. How did Ripple (XRP) perform following market announcements?
Ripple (XRP) traded around $1.0951 following a 10% surge as altcoins stabilized on US Treasury liquidity updates.

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