The Reserve Bank of India (RBI) is expected to revise its inflation target down for the 2025-26 financial year in the coming August MPC (Monetary Policy Committee), according to a recent report from CarEEDGE Ratings.
The report emphasized that the inflation of the consumer price index (CPI) can be on average on average around 3.1 percent in FY26, considerably under the current RBI projection of 3.7 percent. For FY27, inflation is expected to remain higher by around 4.5 percent, due to the low basic effect of FY26
It stated: “MPC as a lower inflation goal … CPI inflation will on average approximately 3.1 percent in FY26. Given the low base of FY26, we expect that the average CPI inflation will be higher, around 4.5 percent in FY27.” According to the report, the Headline CPI inflation in June fell sharply to 2.1 percent, which came under expectations and marked the lowest level since January 2019. The decrease in inflation was mainly driven by continuous moderation of food prices and a favorable basic effect of the previous year.
Within the CPI basket, the Food and Beverage category was entered into in deflation, by 0.2 percent on an annual basis in June. This was led by steep fall in prices of vegetables (-19 percent), pulses (-12 percent), herbs (-3 percent) and meat (-1.6 percent). Looking ahead, the report stated that food inflation is expected to remain, supported by a healthy agricultural production and persistent basic effect support.
In the meantime, core inflation saw a slight increase to 4.4 percent in June, but the report clarified that this was not wide and was mainly powered by higher prices of noble metals. When gold and silver are excluded, core inflation is at a more moderate 3.5 percent. Despite the delay in global demand, the report notes that geopolitical developments and trade policy changes can continue to influence raw material prices. That is why close monitoring of these factors remains essential.
In general, the report expects that the inflationary environment will remain favorable in the coming quarters. However, CPI inflation can violate above 4 percent of 4 percent in the fourth quarter of FY26, because the favorable basic effect decreases.
With CPI inflation that probably underlines the current FY26 forecast of the RBI, the central bank can revise its inflation -in -white in the upcoming monetary policy meeting.
Published on August 4, 2025
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