Reserve Bank of India (RBI) Governor Sanjay Malhotra (file photo) | Photocredit: Francis Mascarenhas
The Reserve Bank of India (RBI) has reduced its CPI inflation projection for FY26 to 3.1 percent of the previously projected 3.7 percent, even when it retained the real BDP growth by 6.5 percent.
RBI GOUVERNEUR SANJAY MALHOTRA noted that the inflation outlook for FY26 has become more good than expected in June.
“Large favorable basic effects in combination with steady progress of the southwestern monsoon, healthy kharifsi, adequate reservoir levels and comfortable buffer stocks of food grains have contributed to this moderation,” said Malhotra in his August monetary policy statement.
However, inflation is likely to rise above 4 percent by Q4FY26 and afterwards, because unfavorable basic effects and demand factors of policy actions come into play.
The governor noted that the most important negative shock for input prices, the core inflation will probably remain moderately above 4 percent during the year. Weather -related shocks pose risks for inflation views.
Given all these factors, CPI inflation for FY26 is now projected at 3.1 percent with Q2 by 2.1 percent (earlier projection: 3.4 percent); Q3 at 3.1 percent (3.9 percent); and Q4 at 4.4 percent (unchanged). CPI inflation for Q1: FY27 is projected at 4.9 percent. The risks are evenly balanced.
Real GDP growth
Malhotra said that the real GDP growth for 2025-26 was retained at 6.5 percent, even if he emphasized that domestic growth remains resilient and broadly evolves along the style of our assessment.
The governor emphasized that the above normal southwestern monsoon, lower inflation, the use of rising capacity and sympathetic financial circumstances continue to support domestic economic activity.
The supporting monetary, regulatory and tax policy including robust government capital expenditure must also stimulate the question, he added.
Furthermore, the service sector is expected to remain floating, with continuous growth in construction and trade in the coming months.
However, the outlook on external demand remains uncertain in the midst of current rate announcements and trade negotiations.
Malhotra warned that the headwind comes from long -term geopolitical tensions, persistent global uncertainties and volatility in the global financial markets risks for growth output.
The Governor noted that private consumption, helped by the demand in the countryside and fixed investments, supported by a floating Government Capex, continues to stimulate economic activity.
“On the supply side, a steady southwestern monsoon supports the sowing of Kharif, supplementing reservoir levels and stimulating agricultural activity,” he said.
Moreover, the service sector and construction activity remain robust. The growth in the industrial sector, however, remained modest and uneven about segments, pulled down by electricity and mining.
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Published on August 6, 2025
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