RBI lowers retail inflation projection due to positive food inflation outlook and fall in crude oil prices
| Photo Credit:
Siva SaravananS

The Reserve Bank of India (RBI) has pared real GDP and retail inflation projections by 20 basis points each for FY26.

The cut in the real GDP growth forecast comes in the backdrop of the reciprocal tariff announcements by the US administration and associated policy uncertainty posing headwinds to growth.

The cut in the retail inflation projection is in view of RBI’s assessment that the outlook for food inflation has turned decisively positive and the fall in crude oil prices augurs well for the inflation outlook.

Real GDP growth for FY26 is now projected at 6.5 per cent (6.7 per cent earlier projection), with Q1 at 6.5 per cent (6.7 per cent), Q2 at 6.7 per cent (7.0 per cent;), Q3 at 6.6 per cent (6.5 per cent) and Q4 at 6.3 per cent (6.5 per cent). RBI said while the risks are evenly balanced around these baseline projections, uncertainties remain high in the wake of the recent spike in global volatility.

Retail inflation for the financial year 2025-26 is projected at 4.0 per cent (4.2 per cent), with Q1 at 3.6 per cent (4.5 per cent), Q2 at 3.9 per cent (4 per cent), Q3 at 3.8 per cent (3.8 per cent) and Q4 at 4.4 per cent (4.2 per cent) . The risks are evenly balanced.

Support factors

Governor Sanjay Malhotra said going forward, sustained demand from rural areas, an anticipated revival in urban consumption, expected recovery of fixed capital formation supported by increased government capital expenditure, higher capacity utilisation, and healthy balance sheets of corporates and banks are expected to support growth.

He noted that merchandise exports would be weighed down by the evolving global economic landscape which appears to be uncertain at the current juncture, while services exports are expected to sustain the resilience.

On the supply side, the Governor said while agricultural prospects appear bright, industrial activity continues to recover and services sector is expected to be resilient. Headwinds from global trade disruptions continue to pose downward risks.

Positive food inflation

Malhotra emphasised that the outlook for food inflation has turned decisively positive. There has been a substantial and broad-based seasonal correction in vegetable prices. The uncertainties on rabi crops have abated considerably and the second advance estimates point to a record wheat production and higher production of key pulses over last year.

Along with robust kharif arrivals, this is expected to set the stage for a durable softening in food inflation.

“Sharp decline in inflation expectations for three months and one year ahead period would help anchor inflation expectations going ahead. Furthermore, the fall in crude oil prices augurs well for the inflation outlook.

“Concerns on lingering global market uncertainties and recurrence of adverse weather-related supply disruptions pose upside risks to the inflation trajectory,” the Governor said.

Published on April 9, 2025