The Reserve Bank of India (RBI) unveiled the second bi-monthly monetary policy decision for the new fiscal 2026-27 (FY27) on Friday, June 5, and unanimously decided to maintain the status quo on interest rates for the third consecutive meeting with a neutral stance.
RBI Governor Sanjay Malhotra-led monetary policy committee estimated the full year consumer price index-based inflation for FY27 at 5.1%, a 50-basis point hike amid global supply disruptions due to the US-Iran geopolitical conflict. In the previous MPC meet, the central projected inflation for FY27 at 4.6%.
On a quarterly basis, RBI's inflation projection for Q1FY27 is 4.2% against 4%, estimated in the previous policy meeting, while inflation in Q2 of the fiscal is estimated at 5.1% against 4.4%. In Q3, inflation is projected at 5.9% against 5.2% estimated in April. Meanwhile, inflation is forecasted at 5.4% in the fourth quarter of the fiscal.
The primarliy flagged geopolitical risks and monsoon forecast, specifically El Nino risks as key concerns for economic activity in the country.
"Global economic outlook remains clouded by the continuing geopolitical impasse in West Asia, as sharply escalating energy prices and global supply chain disruptions continue to hinder economic activity," Malhotra said.
"The outlook also remains clouded due to the subnormal south-west monsoon forecast and El Niño risks," he added.
Headline CPI inflation remained below the target during March and April 2026 at 3.4% and 3.5%, respectively. While food inflation rose, fuel inflation remained muted as retail prices of petrol and diesel were unchanged in March and April.
Core inflation remained at 3.7% from March to April and after excluding precious metals, it was at 2.1-2.2%. International crude oil prices averaged around $110/barrel during April-May 2026. Higher energy prices and an increase in several input prices also led to a sharp spike in WPI inflation in April 2026.
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