RBI forecasts 4.2 percent inflation for FY26, down from FY25 estimate of 4.8 percent

The Reserve Bank of India has projected a retail inflation of 4.2 percent for FY26, down from 4.8 percent in FY25, citing favourable food conditions but warning of global uncertainties and volatile energy prices.

The Reserve Bank of India (RBI) has projected retail inflation for the 2025-26 financial year at 4.2%, a decrease from its earlier estimate of 4.8% for 2024-25, as it unveiled the last bi-monthly monetary policy review of the fiscal year.

RBI Governor Sanjay Malhotra shared the inflation projections, stating that food inflation would soften considerably due to favourable conditions, including good kharif crop production, lower vegetable prices, and positive prospects for the rabi crop. He further highlighted that core inflation is expected to rise but will remain relatively moderate during the coming months.

However, Malhotra warned that continued uncertainty in global financial markets, volatility in energy prices, and adverse weather events could introduce upside risks to inflation, adding pressure to the country's inflation trajectory.

While retaining the 4.8% inflation forecast for FY24-25, with a specific projection of 4.4% for Q4, the RBI Governor stated that inflation in FY26 could soften further, with projections set at 4.2% for the year, broken down as follows: Q1 at 4.5%, Q2 at 4%, Q3 at 3.8%, and Q4 at 4.2%. Malhotra assured that the risks to these projections are evenly balanced.

In its previous policy review, the RBI had anticipated an inflation rate of 4.8% for 2024-25, with the third quarter forecasted at 5.7% and the final quarter at 4.5%. Projections for Q1 of 2025-26 had indicated an inflation of 4.6%, while Q2 was expected at 4%.

As per the latest data, the Consumer Price Index (CPI)-based inflation dropped to a four-month low of 5.22% in December 2024, primarily due to the easing of food prices, particularly vegetables. This marked a decrease from 5.48% in November 2024. Inflation had climbed to 6.2% in October 2024, following an increase from 3.6% in July-August to 5.5% in September.

The Economic Survey presented in Parliament last week underlined the need for India to develop climate-resilient crop varieties and improve yields in essential crops like pulses, oilseeds, tomatoes, and onions to ensure long-term price stability. The Survey also indicated that vegetables and pulses contributed significantly to food inflation, accounting for 32.3% of inflation between April and December 2024.

(With inputs from PTI) 

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