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RBI lowers inflation forecast to 3.1% for FY26; growth outlook unchanged
The Monetary Policy Committee (MPC) projects inflation at 2.1 per cent in the second quarter (Q2) of FY26, 3.1 per cent in the third, and 4.4 per cent in the fourth. For the first quarter of FY27, inflation is expected to rise to 4.9 per cent as base effects fade.
June inflation lowest in 77 months
The revision comes amid a marked cooling in prices. India's retail inflation, measured by the Consumer Price Index (CPI), fell to 2.1 per cent in June 2025 from 2.82 per cent in May, the lowest reading since January 2019, according to the Ministry of Statistics and Programme Implementation.
RBI Governor Sanjay Malhotra pointed out that this was the lowest in 77 months, stating that a 'Large favourable base effects combined with steady progress of the southwest monsoon, healthy kharif sowing, adequate reservoir levels and comfortable buffer stocks of foodgrains have contributed to this moderation [in inflation],' he said.
'On the supply side, a steady south-west monsoon is supporting kharif sowing, replenishing reservoir levels and boosting agriculture activity,' the RBI governor said, but warned of weather-related risks.
Food inflation in June
Food inflation, measured by the Consumer Food Price Index (CFPI), turned negative in June for the first time in over six years — at -0.92 per cent in rural areas and -1.22 per cent in urban areas — down from 0.95 per cent and 0.96 per cent, respectively, in May.
The ministry attributed the decline to a favourable base effect and lower prices across categories, including vegetables, pulses, cereals, meat and fish, sugar, milk, and spices.
Wholesale price pressures have also moderated, with the Wholesale Price Index (WPI) inflation slipping into negative territory at -0.13 per cent in June from 0.39 per cent in May, mainly due to falling prices of food articles, fuel and power, and basic metals.
Growth forecast for FY26 at 6.5 per cent
The gross domestic product (GDP) growth forecast for FY26 remains at 6.5 per cent, with quarterly estimates of 6.5 per cent in Q1, 6.7 per cent in Q2, 6.6 per cent in Q3, and 6.3 per cent in Q4. Growth for Q1 of the next financial year, FY27, is projected at 6.6 per cent.
The RBI said robust services and construction activity, government capital expenditure, and improving rural demand will support momentum, though external demand risks persist.
CRR cut to be effective from Sept
The MPC reiterated that the 100-basis-point reduction in the cash reserve ratio (CRR), first announced in June, will be implemented in four tranches of 25 basis points each on September 6, October 4, November 1, and November 29, 2025.
Governor Malhotra said the measure will 'ensure adequate liquidity in the banking system to support credit growth and smooth financial market functioning.'
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