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Informist, Friday, Jun. 5, 2026

 

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--RBI Malhotra: Core inflation stable during Mar-Apr
--RBI Malhotra: Revises FY27 CPI inflation forecast to 5.1% from 4.6?rlier
--RBI Malhotra: Raised retail fuel prices to push CPI up in coming months
--RBI Malhotra: Revises Apr-Jun CPI inflation forecast to 4.2% from 4.0%
--RBI Malhotra: Revises Jul-Sept CPI inflation forecast to 5.1% from 4.4?rlier
--RBI Malhotra: Revises FY27 core CPI inflation forecast to 4.7%
--RBI Malhotra: Revises Oct-Dec CPI inflation forecast to 5.9% from 5.2?rlier
--RBI Malhotra: Revises Jan-Mar CPI inflation forecast to 5.4% from 4.7?rlier
--RBI Malhotra: Risks to inflation forecasts are on the upside
--RBI Malhotra: Higher CPI may pull down discretionary household spending
--RBI Malhotra: Rising inflation could be drag on households' purchasing power
--RBI Malhotra: Core inflation much lower without precious metals Mar-Apr
--RBI Malhotra: Higher energy prices led to sharp spike in WPI inflation
--RBI Malhotra: Pass-through of higher global energy prices began in May
--RBI Malhotra: CPI infation remains below target despite global shocks
--RBI Malhotra: Impact of supply shocks to wane from Q4 onwards
--RBI Malhotra: Underlying inflation pressure remain benign at this point
--RBI Malhotra: Underlying inflation pressures remain benign as of now
--RBI Malhotra: Second-round effects of inflation possible
--RBI Malhotra: Inflation expected to inch towards upper level of band Q3 FY27
--RBI Malhotra: Risk of higher inflation amplified
--RBI Malhotra: MPC felt better to wait for better clarity on CPI to emerge

 

NEW DELHI – The Reserve Bank of India Friday raised the outlook for 2026-27 (Apr-Mar) headline inflation by 50 basis points to 5.1% as risks from West Asia war-led uncertainties have intensified since the Monetary Policy Committee last met in April, Governor Sanjay Malhotra said. Besides the pressure on inflation from higher energy prices and supply-side bottlenecks, sub-normal rainfall and El Nino conditions also pose downside risks. The central bank raised the inflation forecast for Apr-Jun by 20 bps to 4.2%.

 

"The underlying inflation pressures continue to remain benign at this juncture," Malhotra said after the second bi-monthly meeting of the Monetary Policy Committee for FY27. "However, generalisation of inflation through second-round effects on expectations and wages is a distinct possibility, warranting a close vigil," he said. "The outlook also remains clouded by the subnormal south-west monsoon forecast and El Nino risks."

 

The central bank's view on inflation for FY27 is broadly in line with economists' view, who now expect inflation to average 5% this year, with upside risks if the West Asia crisis lingers for longer. The US-Israel war on Iran, which started on Feb. 28, has dented oil and gas supplies to the world, including India. Global crude oil prices have surged to $123 a barrel after the war started from the sub-$73 a barrel before Feb. 28. As a result, India, which imports nearly 50% of its crude oil and around 90% of cooking gas imports through the now-disrupted Strait of Hormuz, is facing one of the worst crises in decades.

 

According to Malhotra, during the last policy meeting in April, global crude oil prices were seen averaging $85 per barrel, which is now seen at $110 per barrel. This will exert direct pressure on headline inflation, along with second-round effects from higher input costs and freight charges, among others. "Looking ahead, elevated energy and other commodity prices coupled with continued supply disruptions are likely to affect economic activity," Malhotra said. 

 

Taking into account the growth-inflation dynamics, the Monetary Policy Committee on Friday left the policy repo rate unchanged at 5.25% in a unanimous decision, while also retaining the "neutral" policy stance. "Although risks of higher inflation have amplified, the MPC felt it would be prudent to wait for greater clarity to emerge. Accordingly, the MPC voted to keep the policy rate unchanged," he said. "At the same time, the MPC will continue to remain data-dependent and closely monitor the developments, including supply side pressures getting embedded in the general price level and inflation expectations."

 

The quarterly break-up of the central bank's latest inflation forecasts is as follows--4.2% for Apr-Jun, 5.1% for Jul-Sept, 5.9% for Oct-Dec and 5.4% for Jan-Mar. It had previously forecast inflation in the second quarter of FY27 to average 4.4%, the third quarter at 5.2%, and the fourth quarter at 4.7%. Malhotra also projected core inflation to average 4.7% in FY27, 30 bps higher than the earlier projection. "...there are considerable risks to the MPC's baseline assessment of inflation and growth due to the uncertainty about the duration and intensity of the conflict, magnitude of its spillover effects and the pace of restoration of supply chains," the governor said.

 

Given this situation, headline inflation is expected to be near the upper tolerance band of 6% in Oct-Dec, and the impact of the supply shock is expected to wane Jan-Mar onwards, the central bank chief added. 

 

Headline inflation currently remains below the 6% target despite the global shock, as the pass-through of higher crude oil prices to domestic prices has been limited. In April, CPI inflation rose marginally to 3.5% from 3.4% in the previous month, but WPI inflation jumped much higher to a 42-month high of 8.3% in April from 3.9% in March. April marked a divergence between WPI and CPI inflation after they had moved broadly in line over the past year, due to industries facing higher fuel price pressure, not at the retail level.

 

That said, the pass-through of higher energy prices to retail products is already evident, Malhotra said. The partial pass-through of higher global crude oil prices to domestic pump prices of petrol and diesel in May, and increased prices of several inputs such as commercial LPG, industrial raw materials, chemicals, base metals, rubber, and plastic products, among others, could exert upward pressure on CPI inflation in the coming months as firms pass on higher input costs.

 

Oil marketing companies, after absorbing the higher crude oil prices for more than 75 days, increased the retail prices of petrol and diesel by INR 7.35 per litre and INR 7.53 per litre, respectively, in four tranches over the second half of May. "The increase implies a direct impact of about 36 basis points on headline inflation, which, along with second-order effects, would get reflected in CPI inflation in the coming months," the monetary policy statement said.

 

Food inflation, which guided monetary policy action for the most part of 2023 and 2024, had been benign for a while. The risks of a lower monsoon and a strong El Nino rendered the food inflation outlook "uncertain", according to Malhotra. Adequate stock of foodgrains and satisfactory reservoir levels, however, provide some comfort, he added. 

 

All said, the rising inflation could also drag the purchasing power of households and eventually bring down consumption in the economy. According to Malhotra, while no meaningful resolution of the West Asia war adversely impacted the domestic growth-inflation outlook, the economy at this point is relatively strong. "We shall put in place policies to meet the challenges while taking measures to further strengthen the macroeconomic fundamentals of the country," the governor said.  End

 

US$1 = INR 95.40

 

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

 

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