MPC meeting: RBI cuts FY26 inflation forecast to 3.1% from 3.7%

RBI governor Sanjay Malhotra.

The Reserve Bank of India's Monetary Policy Committee (MPC) on August 6 lowered its Consumer Price Index (CPI) inflation projection for FY26 to 3.1 percent from its earlier forecast of 3.7 percent, on easing food prices and a benign outlook.

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.

The MPC also revised down the inflation forecast for the fiscal second quarter to 2.1 percent from 3.7 percent and third quarter to 3.1 percent from 3.9 percent. The projection for the fourth quarter remained unchanged at 4.4 percent. For the first quarter of FY27, the rate-setting panel pegs inflation at 4.9 percent.

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The CPI inflation would likely go up in Q4 beyond the RBI's medium-term target of 4 percent, as unfavourable base effects and demand side factors from policy actions come into play, the RBI Governor said.

Barring any major negative shock to input prices, core inflation is likely to remain moderately above 4 percent during the year. Weather-related shocks pose risks to inflation outlook, he added.

As largely expected, the central bank held rates steady at its bi-monthly policy review. A Moneycontrol poll expected the rate-setting panel to hold rates steady and stick to its “neutral” stance. The 17 economists, bank treasury heads and fund managers polled by Moneycontrol expected the RBI to lower CPI inflation projections, taking comfort from the lower food prices and a benign outlook.

Under Malhotra, who took over as the governor in December, the RBI has cut policy rates by 100 basis points this year, bringing the repo rate down to 5.5 percent.