In light of strong agricultural output and declining crude prices, the Reserve Bank of India (RBI) reduced its inflation forecast for FY26 on Wednesday from 4.2% to 4% from 4.2% in February. The RBI’s Monetary Policy Committee (MPC) examined the state of the economy during its policy meeting and identified a significant improvement in food inflation trends as a major factor.
Following a significant correction in food inflation, headline inflation decreased in January and February of 2025, according to RBI Governor Sanjay Malhotra. Inflation for food shows a definite improvement in outlook. The second advance estimates indicate that the production of important pulses and wheat will surpass last year’s record, and the uncertainties surrounding rabi crops have significantly decreased.
In addition to strong kharif arrivals, this is anticipated to create the conditions for a long-term reduction in food inflation. A significant drop in inflation forecasts in the most recent survey for the next three months and a year would also assist in stabilizing inflation expectations, he continued. The decline in the price of crude oil also bodes favorably for the inflation outlook.
The central bank predicted FY26 CPI inflation to be 4.0%, with Q1 inflation at 3.6%, Q2 inflation at 3.9%, Q3 inflation at 3.8%, and Q4 inflation at 4.4%, assuming a typical monsoon. Every danger is equally distributed.
According to economists, the inflation outlook will allow for a longer cycle of rate cuts. “This deeper rate cut cycle will be made possible by the benign outlook on inflation (a favorable monsoon and lower crude oil prices to counteract INR depreciation) and downside risks to growth,” stated Suvodeep Rakshit, Chief Economist at Kotak Institutional Equities. Since inflation is predicted to stay around the 4% mark, the RBI’s attention is still on resolving growth difficulties.
The RBI governor also identified important threats to the direction of inflation. However, the RBI governor stated that “there are upside risks to the inflation trajectory due to concerns about lingering global market uncertainties and the recurrence of adverse weather-related supply disruptions.”
June 4–6 is the next MPC meeting. August 5–7, September 29–October 1, December 3–5, and February 4–6 are the next meetings.
