RBI Inflation 2025-26: FY26 inflation forecast revised downwards to 3.7%

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) on Friday said that the inflation has declined, supported by a favourable outlook on food and is expected to moderate in FY26, offering further relief to Indian households.

For the full year FY26, the RBI has projected headline inflation at 3.70%, lower than the 4% forecast made in April.

The latest quarter-wise estimates are: 2.9% in Q1, 3.4% in Q2, 3.5% in Q3, and 4.4% in Q4. The central bank maintained that risks to inflation outlook are “evenly balanced.”

RBI Guv Sanjay Malhotra highlighted that headline inflation in India moderated to a nearly 6-year low in April, aided by a fall in food prices. As for the fuel basket, deflationary condition prevailed in March-April, he added. Core inflation remains steady in march April, despite a gold price increase.

While food inflation remains soft, core inflation is also expected to cool further going forward, Malhotra said.

Inflation has softened significantly over the last six months from above the tolerance band in October 2024 to well below the target with signs of a broad-based moderation, Malhotra said.

The day's highlight decision

In the highlight decision of the day, the MPC reduced the benchmark repo rate by 50 basis points to 5.5%. The policy stance was also changed from accommodative to neutral.

The MPC felt that frontloading of rate cut will boost growth, the governor said.

This easing aligns with earlier forecasts in the Economic Survey, which had anticipated a decline in food inflation in the last quarter of FY25.

This marks the third straight rate cut in 2025 as the RBI stays focused on supporting growth amid improving inflation conditions and ongoing global economic uncertainty.

Both on the inflation and growth front, the Indian economy is progressing well in spite of global uncertainties, the governor said.

Key pointers from RBI Guv's price predictions

• The near-term and medium-term outlook now gives us the confidence of not only a durable alignment of headline inflation with the target of 4 per cent, as exuded in the last meeting but also the belief that during the year, it is likely to undershoot the target at the margin.
• While food inflation outlook remains soft, core inflation is expected to remain benign with easing of international commodity prices in line with the anticipated global growth slowdown.
• The inflation outlook for the year is being revised downwards from the earlier forecast of 4.0 per cent to 3.7 per cent.
• Growth, on the other hand, remains lower than our aspirations amidst challenging global environment and heightened uncertainty.
• The outlook for inflation points towards benign prices across major constituents.
• The record wheat production and higher production of key pulses in the Rabi crop season should ensure adequate supply of key food items.
• Going forward, the likely above normal monsoon along with its early onset augurs well for Kharif crop prospects. Reflecting this, inflation expectations are showing a moderating trend, more so for the rural households.
• Most projections point towards continued moderation in the prices of key commodities, including crude oil.
• Notwithstanding these favourable prognoses, we need to remain watchful of weather-related uncertainties and still evolving tariff related concerns with their attendant impact on global commodity prices.
• CPI headline inflation continued its declining trajectory in March and April.
• This was led mainly by food inflation which recorded the sixth consecutive monthly decline.
• Fuel group witnessed a reversal of deflationary conditions and recorded positive inflation prints during March and April, partly reflecting the hike in LPG prices.
• Core inflation remained largely steady and contained during March-April, despite increase in gold prices exerting upward pressure.