RBI policy a non-event for GDP but inflation forecast sees movement

Inflation forecasts have seen more variation on policy forecast than GDP

The Reserve Bank of India’s bi-monthly monetary policy review, the outcome of which was shared on June 6 morning by governor Sanjay Malhotra, was a non-event as far as GDP forecast goes, with growth projections remaining unchanged from the April meeting.

It was inflation outlook that saw some changes, which was in keeping with the trend of the past few years. A Moneycontrol analysis shows that in the post-Covid period, the RBI has routinely revised its inflation forecasts in the June policy, reflecting a more dynamic outlook on price trends.

The RBI’s monetary policy committee retained its FY26 GDP forecast at 6.5 percent but lowered its inflation estimate to 3.7 percent from 4 percent in the April review. The inflation forecast is in line with the median estimate from 14 economists surveyed by Moneycontrol in a poll conducted ahead of the policy announcement and release of GDP numbers.

“On the supply side, agriculture prospects remain bright on the back of an above-normal southwest monsoon forecast and resilient allied activities. The services sector is expected to maintain its momentum. However, spillovers from protracted geopolitical tensions and global trade and weather-related uncertainties pose downside risks to growth,” the policy statement said.

This mirrors long-term trend. In FY24, too, the RBI left GDP forecast unchanged at 6.5 percent in June. For FY25, the central bank raised the forecast to 7.2 percent from 7 percent.

Between FY17 and FY26, the RBI’s June policy has mostly involved no or marginal changes to GDP forecasts in six of the nine years. Inflation projections, however, has been revised more actively, with adjustments made in four of the past five years.

While in FY25, the inflation forecast was left unchanged at 4.5 percent, in the previous year, the MPC reduced it to 5.1 percent from 5.2 percent earlier. In FY23, it was raised sharply by one percentage point to 6.7 percent, reflecting price pressures emerging from supply disruptions and global commodity volatility.

The central bank’s decision to lower the FY26 inflation forecast is based on expectations of above-normal monsoon rains and contained oil prices.

“The outlook for inflation points towards benign prices across major constituents. Record wheat production and higher output of key pulses in the Rabi crop season should ensure adequate food supply,” the MPC said, reinforcing its view of easing inflation pressures.

Headline inflation fell to 3.2 percent in April, its lowest level in nearly six years, and stayed below 4 percent for a third consecutive month justifying the downward revision.

The RBI’s 3.7 percent forecast is in line with the median estimate from 14 economists surveyed in a Moneycontrol poll conducted ahead of the policy announcement and GDP release.

In a surprise move, the MPC front-loaded a rate cut, reducing the policy repo rate by 50 basis points to 5.5 percent from 6 percent. The policy rate now stands a full percentage point below the 6.5 percent level at the beginning of the year.