The Reserve Bank of India on Wednesday lowered its inflation forecast for the current financial year by 10 basis points even as Governor Sanjay Malhotra flagged risks from food and fuel prices, rainfall patterns and volatile global oil prices.
The Reserve Bank of India cut its consumer price inflation forecast for the financial year ending March 2027 to 5% from 5.1% projected in June, as the Monetary Policy Committee kept the repo rate unchanged at 5.25%.
The central bank expects inflation at 5.3% in the first quarter, 4.7% in the second, 5.9% in the third and 5.5% in the fourth quarter. In June, the RBI had raised its full-year inflation projection by 50 basis points to 5.1%.
The revised forecast comes as the central bank assesses the impact of higher food and fuel prices, input costs and volatile global oil prices on the inflation trajectory. While broader inflation pressures remain modest, the RBI sees a risk that higher costs could feed into prices across the economy.
"CPI inflation for this year is now projected to be 5%, 10 basis points lower than our earlier projections," RBI Governor Sanjay Malhotra said while announcing the MPC's decision.
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Food, Fuel Prices Drive June Inflation
Malhotra said the rise in inflation in June was primarily driven by higher food and fuel prices, including fuel-induced inflation.
Core inflation, which excludes food and fuel, remained unchanged at 3.9% in May and June despite pressure from higher input costs.
The RBI projects core inflation at 4.3% for the current financial year.
Malhotra said the impact of El Nino on the timing and geographical distribution of rainfall remains a major risk to the inflation outlook.
Global oil prices have also remained volatile, with sharp movements in both directions following geopolitical developments, making the near-term inflation outlook less certain.
While generalised inflation pressures remain modest so far, Malhotra flagged the risk of second-round effects from higher food, fuel and other input costs feeding into broader inflation.
The MPC kept the repo rate unchanged at 5.25%.
Catch all the live updates on MPC decision here.
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