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Informist, Wednesday, Oct. 1, 2025

NEW DELHI – The Reserve Bank of India has assumed the rupee at 88 per dollar for 2025-26 (Apr-Mar) for its growth and inflation projections, higher than the assumption of 86.0 a dollar taken during the first half of FY26, the central bank said in the October edition of its half-yearly Monetary Policy Report, released Wednesday. The RBI left its assumption for the price of India's crude oil basket unchanged at $70 a barrel for FY26 projections. 

"These baseline assumptions are subject to uncertainties emanating from US trade policies, protracted geopolitical hostilities, volatility in global financial markets and adverse weather shocks," the report said. The RBI has raised its GDP growth view for FY26 to 6.8% from 6.5% and slashed its CPI inflation estimate for the year to 2.6% from 3.1%.

For the next fiscal, the RBI cut its GDP growth forcast to 6.6% in the latest Monetary Policy Report from 6.7% given in the April edition. India's quarterly GDP growh is likley to be in the range of 6.4-6.8% in the next fiscal, according to the report. 

In the Monetary Policy Report, the RBI raised its CPI inflation forecast for FY27 to 4.5% from 4.3% projected in April, as per structural model estimates. Assuming a normal monsoon and no exogenous shocks, the structural model estimates the quarterly CPI inflation to be in the range of 3.9-5.1%.

The higher exchange rate assumption comes on the back of ongoing uncertainty surrounding the US dollar and the volatility in global capital flows. The rupee has depreciated 5% against the dollar since the end of April. 

The RBI's projections have assumed general government fiscal deficit staying within 7.4% of GDP in FY26. The forecast assumes change in India's macroeconomic dynamics due to goods and services tax rate rationalisation, the RBI report said. On Sept. 22, the government rolled out the two-slab consolidated GST structure of 5% and 18%, against the earlier four-slab structure with 5%, 12%, 18%, and 28% rates.

"Global economic outlook is also subject to headwinds from adverse weather shocks and technological disruptions," the report said. "Given this backdrop, if global growth turns out to be 100 bps below the baseline, domestic growth and inflation could be lower by around 30 bps and 15 bps, respectively." If global growth is 50 bps above the baseline, India's growth could rise by 15 bps, while inflation could increase by 7 bps, the report said. 

If crude oil prices fall 10% from the baseline assumption, India's CPI inflation could come down by 30 bps, and growth could rise 15 bps. If crude oil prices rise 10% from the baseline, inflation in India could rise by 30 bps, while growth could fall by 15 bps, the report said. 

Similarly, rupee 5% weaker than baseline could push up CPI inflation by 35 bps and boost GDP growth by 25 bps. If the rupee is 5% stronger than baseline, CPI inflation could come down by 35 bps, while GDP growth could be hit by 25 bps. 

End

US$1 = INR 88.71

Reported by Krity Ambey

Edited by Vandana Hingorani

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