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Informist, Wednesday, Oct. 1, 2025

 

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--See FY26 CPI inflation at 2.6%
--Cuts FY26 CPI inflation forecast to 2.6% from 3.1?rlier
--Cuts Jul-Sept CPI inflation forecast to 1.8% from 2.1?rlier
--Cuts Oct-Dec CPI inflation forecast to 1.8% from 3.1?rlier
--Cuts Jan-Mar CPI inflation forecast to 4.0% from 4.4?rlier
--Cuts Apr-Jun FY27 CPI inflation forecast to 4.5% from 4.9%
--Headline CPI in Q4 FY26, Q1 FY27 broadly in line with aim
--Risks to inflation forecasts are evenly balanced
--Low inflation due to sharp fall in food inflation
--GST reforms to reduce prices of several items of CPI basket
--Inflation outcome likely to be softer than Aug projections
--Considerable moderation in headline inflation
--GST rationalisation to bring down CPI
--Inflation remained above expected target in some economies
--MPC observed overall inflation outlook more benign
--Inflation outlook more benign on low food prices, GST rejig
--Core inflation this year, next year to remain contained
--Inflation conditions remain benign so far in FY26
--Actual CPI inflation well below our forecasts so far
--Inflation weighed by sharp fall in food prices
--Core inflation largely contained Aug
--RBI: FY27 CPI inflation seen at 4.5% as per structural model estimates 

 

NEW DELHI – The Reserve Bank of India Wednesday cut its headline inflation forecast for the current quarter ending December by 130 basis points to 1.8% and lowered the projection for 2025-26 (Apr-Mar) by 50 bps to 2.6%. Governor Sanjay Malhotra said the central bank draws comfort from the inflation outlook for FY26 becoming more benign than expected in August, buoyed by a sharp fall in food prices and expectation of lower overall prices following the goods and services tax rate rationalisation.

 

"In terms of the inflation outlook for H2 (Oct-Mar) 2025-26, healthy progress of the southwest monsoon, higher kharif sowing, adequate reservoir levels and comfortable buffer stock of foodgrains should keep food prices benign," Malhotra said in his fifth monetary policy statement on Wednesday. "The recently implemented GST rate rationalisation would lead to a reduction in prices of several items in the CPI basket," he said.

 

The Monetary Policy Committee noted that the average CPI inflation this year is expected to remain significantly below the target while growth could be affected in Oct-Mar owing to exogenous pressures. 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 appropriate monetary policy path. 

 

As per the latest data, India's headline CPI inflation rose to 2.07% in August from an eight-year low of 1.61% in July because of a rise in food prices. This was the first time CPI inflation has risen in 10 months and the seventh consecutive month when it is below the RBI's medium-term target of 4.0%. The lowest CPI inflation print in the current series is 1.46% in June 2017.

 

The central bank also lowered the inflation projection for the quarter ended September by 30 bps to 1.8%. The statistics ministry will release CPI data for September on Oct. 13. A back of the envelope calculation shows, inflation was around 1.72% in September.

 

The quarterly break-up of the central bank's latest inflation forecasts is as follows: 1.8% for Jul-Sept, 1.8% for Oct-Dec, and 4% for Jan-Mar. It had previously forecast inflation in the second quarter of FY26 to average 2.1%, third quarter at 3.1%, and fourth quarter at 4.4%. Malhotra also revised inflation projection for Apr-Jun of FY27 to 4.5% from 4.9%. "The risks are evenly balanced," he said.

 

The RBI's Monetary Policy Report, which was also released Wednesday, said that as per in-house model, inflation is expected to average 4.5% in FY27. 

 

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. GST rate rationalisation, on the other hand, will also add to the momentum as prices of a host of daily-use items, including food products, have gone down since Sept. 22. On Sept. 3, the GST Council overhauled the indirect tax regime by collapsing the four-slab GST structure of 5%, 12%, 18%, and 28% to a two-slab structure of 5% and 18%. 

 

The GST Council segmented the two broad GST slabs on the tenets of 'merit' and 'standard', putting majority of common-use items in the 5% slab, thereby bringing down the effective average GST rate. A host of white goods, especially consumer durables like washing machines and big televisions were moved to the 18% slab from 28%, thereby lowering the average GST rate.

 

Although the central bank's rate-setting panel draws comfort from the room provided by a significant moderation in inflation, it noted that large unfavourable base effects are likely to exert upward pressure on headline CPI inflation, especially in Jan-Mar. Although, it will be broadly aligned with the 4% target despite unfavourable base effects, the MPC noted. 

 

Core inflation--which excludes food and fuel items, whose prices can be volatile--remained at 4.1% in August, the same as in July. Malhotra said core inflation was contained in August despite continued price pressures on precious metals like gold and silver. For FY26 and Apr-Jun of FY27, the central bank chief said core inflation is expected to remain contained. 

 

It is safe to say that inflation is not a concern for the central bank at present. According to Malhotra, fast-changing global economic landscape have altered the narrative on growth-inflation dynamics in India. He, however, noted that even when inflation has remained above the respective targets in some advanced economies, posing fresh challenges for central banks as they navigate the shifting trends, India has been able to stick to price stability.  End

 

Reported by Priyasmita Dutta

Edited by Vandana Hingorani

 

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