Last Updated:June 06, 2025, 12:47 IST
The Reserve Bank of India lowers its FY26 retail inflation forecast to 3.7% from 4% and cuts the repo rate by 50 basis points to 5.5%, citing easing price pressures.
Inflation expectations are showing a moderating trend, more so for the rural households, says RBI Governor Sanjay Malhotra.
In a significant move that signals a sharply improving price outlook, the Reserve Bank of India (RBI) on Friday revised its retail inflation projection for FY26 to 3.7%, down from its earlier estimate of 4%. This marks the lowest average retail inflation forecast by the central bank in recent years.
Also Read: RBI Cuts Interest Rates For 3rd Time In A Row, Repo Rate Reduced By ‘Jumbo’ 50 Bps; CRR Slashed By 100 Bps
The downward revision came alongside a surprise 50 basis points repo rate cut, bringing the key policy rate down to 5.5%, and a 100-bps CRR reduction as the RBI signalled confidence in the easing of price pressures amid a supportive global and domestic backdrop.
What’s Behind the Lower Inflation Forecast?
1. Cooling Core Inflation:
RBI Governor Sanjay Malhotra said core inflation, which excludes volatile food and fuel components, continues to remain benign. This, he said, has been aided by a broad-based easing in international commodity prices.
2. Better Food Supply Outlook:
A record Rabi crop harvest, especially in wheat and pulses, and the forecast of an above-normal monsoon with early onset have bolstered the RBI’s confidence in food price stability. The central bank noted that adequate supply of food items is expected to keep food inflation in check.
“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,” the RBI governor said, while presenting the second bi-monthly monetary policy review of FY26 on June 6, 2025.
3. Lower Current Inflation Readings
Retail inflation for April cooled to 3.16%, the lowest in nearly six years. Inflation has now remained below the RBI’s 4% target for three straight months, creating room for both policy easing and improved price projections.
The latest CPI inflation data for May 2025 is scheduled to be released next week, on June 12.
4. Falling Global Prices:
International prices of key commodities, including crude oil, are showing continued moderation. The RBI said this is likely to have a favorable pass-through effect on domestic inflation going forward.
“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,” Malhotra stated.
Quarterly Breakup of FY26 Inflation Outlook
- Q1 (April-June 2025): 2.9%
- Q2 (July-September 2025): 3.4%
- Q3 (October-December 2025): 3.9%
- Q4 (January-March 2026): 4.4%
While the March quarter projection remains at the upper end of the RBI’s comfort band, the full-year average stays well within the 2-6% target range mandated for the central bank.
Risks Still Remain
Despite the positive forecast, the RBI governor cautioned against complacency. It highlighted risks from weather-related uncertainties, especially during the monsoon season, and global tariff developments that could impact commodity prices and, by extension, inflation.
“Notwithstanding the 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,” Malhotra said.
The sharply lower inflation projection reflects improving macroeconomic stability and may pave the way for further policy easing if the downward trend sustains. For now, the central bank remains “data dependent” and committed to price stability while supporting economic growth.
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to markets, economy and companies. Having a decade of experience in financial journalism, Haris has been previously asso…Read More
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to markets, economy and companies. Having a decade of experience in financial journalism, Haris has been previously asso… Read More
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