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Informist, Wednesday, Aug. 6, 2025

 

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--FY26 inflation outlook more benign than June
--Cuts Jul-Sept CPI inflation forecast to 2.1% from 3.4?rlier
--Cuts Oct-Dec CPI inflation forecast to 3.1% from 3.9?rlier
--Retains Jan-Mar CPI inflation forecast at 4.4%
--Cuts FY26 CPI inflation forecast to 3.1% from 3.7?rlier
--Projects Apr-Jun FY27 CPI inflation at 4.9%
--Core CPI inflation rise in Jun partly driven by gold prices
--CPI inflation is likely to edge up above 4% in Q4
--Inflation expected to go up from Q4 FY26
--Unfavourable base effect, demand-side factors to push up CPI
--Core inflation likely to remain above 4% this year
--Risks to inflation forecasts are evenly balanced
--Core inflation seen moderately above 4% for FY26
--Core inflation steady around 4% as anticipated
--Inflation lower than before, mainly due to food prices
 

 

NEW DELHI – The Reserve Bank of India Wednesday slashed its headline inflation forecast for the quarter ending September by 130 basis points to 2.1% and lowered the projection for 2025-26 (Apr-Mar) by 60 bps to 3.1%. Governor Sanjay Malhotra said the central bank draws comfort from the inflation outlook for FY26 becoming more benign than expected in June, and added that high frequency indicators signal continuation of lower price momentum in food prices in July as well. The statistics ministry will release CPI data for July on Aug. 12.

 

"Large favorable base effects combined with steady progress of the southwest monsoon, healthy kharif sowing, adequate reservoir levels, and comfortable buffer stocks of food grains have contributed to this moderation," Malhotra said in his fourth monetary policy statement on Wednesday. "CPI inflation, however, is likely to edge up above 4% in Jan-Mar of this (fiscal) year and beyond as unfavourable base effect and demand side factors from policy actions taken few months ago come into play," he said.

 

The Monetary Policy Committee noted that the average CPI inflation this year is expected to remain significantly below the target while growth has held up well with some pick-up expected in the coming festival season. Given these dynamics, the RBI's Monetary Policy Committee, as was widely expected, kept the policy repo rate unchanged at 5.50% while also keeping the policy stance unchanged at 'neutral'. The MPC further resolved to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path.

 

As per latest data, India's headline CPI inflation fell to a 77-month low of 2.10% in June largely because of a high base effect. The last time inflation was lower than the June print was in January 2019, when it was 1.97%. According to an Informist poll of 11 economists, retail inflation likely fell to a record low of 1.3% in July. At 1.3%, retail inflation would be the lowest in the current CPI series, which has data from 2014. The lowest CPI inflation print in the current series is 1.46% in June 2017. Headline inflation has also been below 2% only twice in this series.

 

The quarterly break-up of the central bank's latest inflation forecasts is as follows: 2.1% for Jul-Sept, 3.1% for Oct-Dec, and 4.4% for Jan-Mar. It had previously forecast inflation in the second quarter of FY26 to average 3.4% and the third quarter at 3.9%. Malhotra also projected inflation to average 4.9% in Apr-Jun of FY27. "The risks are evenly balanced," he said.

 

Food inflation, which has troubled the central bank for far too long, is expected to be benign and is the primary reason behind the softening of inflation outlook.

 

Although the central bank's rate-setting panel draws comfort from the room provided by a significant moderation in inflation, Malhotra said weather-related shocks pose risks to inflation outlook. "Barring any major negative shock to input prices, core inflation is likely to remain moderately above 4% during the year (FY26)", Malhotra added.

 

Core inflation--which excludes food and fuel items, whose prices can be volatile--rose to a 21-month high of 4.4% in June, from 4.3% in May. Malhotra said this spike was partly driven by gold prices, which economists expect remained steady in July, leading to moderation of core inflation to 4.2% last month.

 

It is safe to say that inflation is not a concern for the central bank presently. According to the central bank chief, despite a challenging external environment, the Indian economy is navigating a steady growth path with price stability. "Monetary policy has appropriately used the policy space created by the benign inflation outlook to support growth without compromising on the primary objective of price stability," Malhotra said. In 2025, the central bank's rate-setting panel has already cut the repo rate by 100 bps.  End

 

Reported by Priyasmita Dutta

Edited by Ashish Shirke

 

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