MPC meeting: CPI inflation to rise above RBI’s medium-term target in Q4

CPI Inflation

The Reserve Bank of India (RBI) expects Consumer Price Index (CPI) inflation to rise above its the medium-term target of 4 percent in the fiscal fourth quarter on unfavourable base effects and demand side factors from policy actions come into play, governor Sanjay Malhotra said on August 6.

The CPI inflation is expected to remain at 4.4 percent in Q4, which is higher than the FY26 projection of 3.1 percent, Q2 2.1 percent, Q3 3.1 percent and Q4 at 4.4 percent. CPI inflation for the first quarter of Q1 is pegged at 4.9 percent.

“With inflation likely to trend higher post the near term favourable trends, the bar for rate cuts ahead is set very high. We can see some room for the last leg of easing only if growth momentum slows significantly,” Upasna Bhardwaj, chief economist at Kotak Mahindra Bank said.

The RBI lowered its CPI inflation projection for FY26 to 3.1 percent from 3.7 percent, on easing food prices and a benign outlook.

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Retail inflation eased to a 77-month low of 2.1 percent in June, down from 2.8 percent in the previous month, driven largely by falling food prices. The inflation print was close to the lower end of the RBI’s tolerance band.

“Inflation is much lower than projected earlier due to volatile food prices, especially in vegetables... but is projected to go up from last quarter of FY26,” governor Sanjay Malhotra said.

As largely expected, the central bank held rates steady at 5.5 percent at its bi-monthly policy review. A Moneycontrol poll expected the rate-setting panel to hold rates steady and stick to its “neutral” stance.