What's Behind India's Low Inflation? RBI Governor Outlines Three Major Reasons — Profit Exclusive

India's retail inflation has been lower than the Reserve Bank of India's target range of 2% to 6% for the last four straight months despite the ongoing external headwinds and geopolitical turmoil. However, inflation has remained low on the back of some major triggers such as softer food prices and flexible inflation targeting, according to RBI Governor Sanjay Malhotra.

In an exclusive interview with NDTV Profit's Managing Editor Tamanna Inamdar, RBI Governor Malhotra explained that food prices have remained low due to high base effect. Global commodity prices, inflation targeting regime and supply-side actions have also contributed to low inflation that's supporting the Indian economy, according to the RBI governor.

Malhotra also said the first reason behind the economy's low consumer-price index based inflation is that food prices have been rather low, and that is because of the base effect. ''We had a very high food inflation earlier and so from a higher base, inflation now seems to be lower. The other thing is, commodity global prices are also quite low,'' he said.

''So, it's more a supply-side phenomenon rather than a demand-side phenomenon,'' he added. According to him, inflation will go up as the base effect wanes. The central bank has projected retail inflation at 2.9% for the January-March quarter of FY26. Going forward, in FY27, RBI has pegged CPI inflation to rise to 3.9% in Q1FY27 and 4% in Q2FY27.

''Core inflation is 4.6%. Of course, lot of it is to do with precious metals inflation. If you exclude that, it's only 2.3% again, which is also, quite low. So on the whole, I think this is inflation is at a level that we are comfortable with because going forward, it's inching up,'' Malhotra said.

Coming to whether the common man is experiencing the impact of low inflation, the RBI Governor said that the consumer surveys have reflected positive responses. ''Inflation has come down as is very evident from the numbers that are given out by MOSPI,'' he said.

''Even in the consumer surveys, we find that the inflations that they feel or project are generally higher from what are actually reported, but they have come down. So, it's not as if they are not feeling the impact of lower prices. They have certainly come down,'' added the RBI governor.

Malhotra explained that the RBI has done a consultation paper on inflation targeting and gave its recommendations to the government. The government will now be setting the target, according to him. RBI's standard target range has been set at 4%, with a 2% scope on either side of the range.

However, he explained that over the years, ever since the central bank implemented the flexible inflation targeting, India's inflation levels ''have actually come down''. ''I would believe that at least some of it, if not everything, is due to the inflation targeting regime that we have put in place. Of course, this is not to say that this is the only reason,'' he said.

''Policy frameworks, government action, supply-side actions by the government and by other players have also been equally important. But over the years, certainly after introduction of flexible inflation targeting, inflation levels have come down,'' explained the RBI governor.

In October 2025, India reported an all-time record low inflation at 0.25%, which further rose to 0.71% in November and 1.33% in December 2025. Food prices fell 2.71% year-on-year in December against a decline of 3.91% in November. Vegetable prices fell 18.47% after a 22.20% decline a month ago.