RBI monetary policy: Central bank projects inflation at 4% for FY26

RBI monetary policy: The Reserve Bank of India (RBI) maintained its 4% inflation projection for 2025–2026 with Q1 at 3.6%, Q2 at 3.9%, Q3 at 3.8% and Q4 at 4.4%. The risks are evenly balanced, said Governor of the RBI, Sanjay Malhotra today.

The RBI Governor noted that the overall inflation decreased in January and February 2025, following a significant drop in food inflation; the outlook for food prices now appears notably optimistic. Concerns over Rabi crop uncertainties have significantly lessened, with the second advance estimates indicating record wheat yields and increased production of essential pulses compared to last year, alongside strong arrivals of key reef.

This situation is likely to create conditions for a lasting reduction in food prices and a significant drop. In our most recent survey, the expectations for inflation over the next three months and one year are expected to help stabilize inflation predictions.

Additionally, the decline in crude oil prices is influenced by inflation output worries linked to ongoing uncertainties in the global market and the recurrence of disruptive weather conditions; however, it also introduces potential upward risks to the inflation path.

“Taking all these factors into consideration, and assuming a normal monsoon, CPI inflation for the financial year 2025-26 is projected at 4.0 per cent, with Q1 at 3.6 per cent; Q2 at 3.9 per cent; Q3 at 3.8 per cent; and Q4 at 4.4 per cent. The risks are evenly balanced,” said RBI Governor Sanjay Malhotra.

RBI repo rate news

The RBI has reduced its key repo rate on Wednesday for the second time in a row and adjusted its monetary policy stance, indicating potential for further cuts, as it aims to invigorate a sluggish economy, which is also under pressure from US tariffs.

As anticipated, the Monetary Policy Committee (MPC), composed of three RBI members and three external members, decreased the repo rate by 25 basis points to 6.00%. The rate-cutting began in February with a quarter-point reduction, marking the first decrease since May 2020.

The central bank altered its stance from "neutral" to "accommodative." The RBI now projects growth at 6.5%, which is slightly lower than its previous forecast of 6.7%.

The next meeting of the MPC is scheduled from June 4 to 6, 2025.

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