RBI Policy: Central bank revises inflation downwards to 3.7% for FY26

RBI monetary policy: The Reserve Bank of India (RBI) revised inflation forecast downward to 3.7% for 2025–2026 with Q1 at 2.9%, Q2 at 3.4%, Q3 at 3.9% and Q4 at 4.4%. The risks are evenly balanced, said Governor of the RBI, Sanjay Malhotra today.

The RBI Governor highlighted a notable trend in consumer price index (CPI) inflation, which has been on a declining path through March and April. In fact, headline inflation dropped to a nearly six-year low of 3.2% in April 2025, reflecting a 69-month low. This decline was primarily driven by food inflation, which marked its sixth consecutive monthly decrease.

On the other hand, the fuel group, which had been experiencing deflation, saw a shift back to positive inflation rates in March and April, partly due to the increase in LPG prices. Meanwhile, core inflation remained stable and well-contained during this period, even with rising gold prices applying upward pressure. Overall, the inflation outlook seems favourable, suggesting that prices for major constituents will remain benign.

Sanjay Malhotra mentioned that most forecasts indicate a continued easing in the prices of essential commodities, such as crude oil. Despite these positive outlooks, we must stay alert to uncertainties related to weather and the ongoing tariff issues, as well as their potential effects on global commodity prices.

“Taking all these factors into consideration, and assuming a normal monsoon, CPI inflation for the financial year 2025-26 is now projected at 3.7%, with Q1 at 2.9%; Q2 at 3.4%; Q3 at 3.9%; and Q4 at 4.4%. The risks are evenly balanced,” said RBI Governor.

RBI repo rate news

RBI Governor Sanjay Malhotra announced that the Monetary Policy Committee (MPC) has decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 50 basis points, bringing it down to 5.50% effective immediately. As a result, the standing deposit facility (SDF) rate will be adjusted to 5.25%, while the marginal standing facility (MSF) rate and the Bank Rate will be set at 5.75%.

The decision to decrease the policy repo rate by 50 basis points received unanimous support from Dr. Nagesh Kumar, Prof. Ram Singh, Dr. Rajiv Ranjan, Dr. Poonam Gupta, and Sanjay Malhotra. However, Saugata Bhattacharya voted for a more modest cut of 25 basis points.

Following a series of cuts totaling 100 basis points since February 2025, the MPC noted that monetary policy now has limited room to further support growth. Consequently, they decided to shift the stance from accommodative to neutral. The next MPC meeting is scheduled to take place from August 4 to 6, 2025.

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