RBI slashes India’s inflation forecast to 2 pc for 2025-26

Mumbai: The RBI’s monetary policy committee (MPC) on Friday slashed its forecast for India’s inflation rate for the financial year 2025-26 to 2 per cent — from 2.6 per cent predicted in October due to the sharp decline in food prices and the GST rate cuts playing out.

RBI Governor Sanjay Malhotra said that “the MPC noted that headline inflation has eased significantly and is likely to be softer than the earlier projections, primarily on account of the exceptionally benign food prices. Reflecting these favourable conditions, the projections for average headline inflation in 2025-26 and Q1 2026-27 have been further revised downwards.”

Malhotra also pointed out that core inflation (which excludes food and fuel) remained largely contained in September-October, despite continued price pressures exerted by precious metals. Excluding gold, core inflation moderated to 2.6 per cent in October. Overall, the decline in inflation has become more generalised, he added.

The RBI Governor observed that food supply prospects have improved on the back of higher kharif production, healthy rabi sowing, adequate reservoir levels and conducive soil moisture. Barring some metals, international commodity prices are likely to moderate going forward.

“Overall, inflation is likely to be softer than what was projected in October, mainly on account of the fall in food prices. Considering all these factors, CPI inflation for 2025-26 is now projected at 2.0 per cent with Q3 at 0.6 per cent; and Q4 at 2.9 per cent. CPI inflation for Q1 2026-27 and Q2 are projected at 3.9 per cent and 4.0 per cent, respectively. The underlying inflation pressures are even lower as the impact of increase in price of precious metals is about 50 bps. The risks are evenly balanced,” Malhotra highlighted.

He explained that core inflation, which had been rising steadily since Q1 2024-25, eased at the margin in Q2 2025-26 and is expected to remain anchored in the period ahead. Both headline and core inflation are expected to be at or below the 4 per cent target during the first half of 2026-27. The underlying inflation pressures are even lower as the impact of increase in price of precious metals is about 50 basis points (bps). Growth, while remaining resilient, is expected to soften somewhat.

“Thus, the growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum. Accordingly, the MPC unanimously voted to reduce the policy repo rate by 25 bps to 5.25 per cent,” Malhotra observed.

He said that headline CPI inflation declined to an all-time low in October 2025. The faster than anticipated decline in inflation was led by correction in food prices, contrary to the usual trend witnessed during the months of September-October.

IANS