RBI MPC revises FY26 inflation forecast to 2.1%, central bank flags food and global risks

The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday revised its inflation outlook for FY2025–26, cutting the Consumer Price Index (CPI) projection to 2.1 per cent, from 2 percent earlier.

The decision was announced at the conclusion of the Sanjay Malhotra-led MPC meeting, alongside the central bank’s latest monetary policy statement.

The Reserve Bank of India's Monetary Policy Committee (MPC) has increased its inflation predictions for the first two quarters of fiscal year 2027. They now expect 4% inflation in Q1 and 4.2% in Q2. This indicates they believe inflation will decrease more slowly than they previously thought.

This decision was made during a three-day meeting. The committee held the repo rate steady at 5.25 per cent and retained a neutral policy stance, signalling flexibility as it navigates global volatility and domestic growth conditions.

Headline CPI inflation remained low in November and December, according to Governor Malhotra.

Revised CPI inflation projections

Based on the updated assessment, the MPC set out the following inflation path:

• Q4 FY26: Increased to 3.1% from 2.9%

• Q1 FY27: Increased to 4% from 3.9%

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• Q2 FY27: Increased to 4.2% from 4%

The central bank said that excluding precious metals, underlying inflation pressures remain muted and that risks are evenly balanced at this stage.

Food supply outlook remains supportive

The committee said near-term food supply prospects are favourable, supported by healthy kharif output, adequate foodgrain buffer stocks, encouraging rabi sowing, and comfortable reservoir levels.

Core inflation, excluding potential volatility from precious metals, is expected to remain range-bound, with underlying pressures continuing to stay contained.

Risks flagged, Q4 base effects to lift inflation

The RBI cautioned that geopolitical uncertainty, energy price volatility, and adverse weather events pose upside risks to the inflation outlook. It also highlighted that unfavourable base effects, following a sharp decline in prices in Q4 of 2024–25, are expected to push up year-on-year inflation in Q4 of the current year, even as momentum remains muted.