RBI’s Monetary Policy Committee Slashes India’s Inflation Rate Forecast To 2.6% From 3.1%

Mumbai: The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Wednesday revised its inflation forecast for the financial year 2025-26, lowering it to 2.6 per cent from the earlier estimate of 3.1 per cent made in August. This downward revision is primarily attributed to recent GST rate cuts and benign food prices.
RBI Governor Sanjay Malhotra explained, “The recently implemented GST rate rationalisation would lead to a reduction in prices of several items in the Consumer Price Index (CPI) basket. Overall, the inflation outcome is likely to be softer than what was projected in the August monetary policy committee resolution, primarily on account of the GST rate cuts and benign food prices.”
Addressing journalists after the MPC meeting, Malhotra added that “the overall inflation outlook has turned even more benign in the last few months.”
Looking ahead to the second half (H2) of 2025-26, factors such as the healthy progress of the southwest monsoon, higher kharif sowing, adequate reservoir levels, and comfortable buffer stocks of foodgrains are expected to keep food prices stable.
Malhotra noted that the average headline inflation forecast for 2025-26 has been revised downwards from 3.7 per cent and 3.1 per cent, as projected in the June and August policy statements respectively, to 2.6 per cent.
Headline inflation projections for Q4 of 2025-26 and Q1 of 2026-27 have also been revised downward and are broadly aligned with the RBI’s target, despite some unfavourable base effects. Core inflation for this period is expected to remain contained.
The RBI Governor pointed out that headline CPI inflation declined to an eight-year low of 1.6 per cent year-on-year in July 2025 before rising slightly to 2.1 per cent in August — marking its first increase after nine consecutive months of decline. The benign inflation environment during 2025-26 so far has been mainly driven by a sharp drop in food inflation from its peak in October 2024.
Inflation within the fuel group remained in a narrow band of 2.4-2.7 per cent during June to August. Core inflation stayed largely contained at 4.2 per cent in August, while excluding precious metals, it was at 3.0 per cent.
Despite expectations of moderate inflationary momentum in H2, Malhotra cautioned that “large unfavourable base effects are likely to exert upward pressure on headline CPI inflation, especially in Q4.”
Taking all factors into account, the RBI now projects CPI inflation for 2025-26 at 2.6 per cent, with quarterly estimates of 1.8 per cent for Q2, 1.8 per cent for Q3, and 4.0 per cent for Q4. For Q1 of 2026-27, CPI inflation is projected at 4.5 per cent.
The Governor further stated that the current macroeconomic conditions and outlook have created policy space for the RBI to further support growth.
*Disclaimer: This story is sourced from a syndicated feed. Only the headline has been changed.*
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