India’s inflation outlook has turned notably positive, with the Reserve Bank of India projecting consumer price index (CPI) inflation at 4% for FY2025–26, down from 4.2% forecasted in February.
The Reserve Bank’s Monetary Policy Committee (MPC) reviewed the economy’s performance in its first policy meeting of the new financial year and flagged a sharp turnaround in food inflation trends as a key driver behind the improvement.
Governor Sanjay Malhotra stated that “the outlook for food inflation has turned decisively positive,” backed by a strong seasonal correction in vegetable prices, robust crop estimates, and easing crude oil prices.
According to the central bank, headline CPI inflation dropped by 1.6 percentage points between December 2024 and February 2025, from 5.2% to 3.6%, led by food inflation falling to a 21-month low of 3.8% in February. The fuel group remained in deflation, while core inflation rose slightly to 4.1%, primarily due to surging gold prices.
“There has been a substantial and broad-based seasonal correction in vegetable prices,” Malhotra said.
“The uncertainties on rabi crops have abated considerably and the second advance estimates point to a record wheat production and higher production of key pulses over last year.”
The RBI noted that the arrival of kharif produce, combined with the ongoing decline in inflation expectations for the near term, should help anchor future price pressures. The recent drop in global crude oil prices is also expected to support disinflation.
However, Malhotra cautioned that risks remain. “Concerns on lingering global market uncertainties and recurrence of adverse weather-related supply disruptions pose upside risks to the inflation trajectory,” he said.
Assuming a normal monsoon, the RBI’s projections for FY26 are as follows:
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Q1: 3.6%
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Q2: 3.9%
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Q3: 3.8%
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Q4: 4.4%
The central bank stressed that these forecasts are made with risks deemed evenly balanced.
Malhotra added that the outlook for food inflation had turned decisively positive, helping anchor the central bank’s updated forecast.
Despite the positive trend in prices, Malhotra cautioned that growth remains uneven. “On the other hand, impeded by a challenging global environment, growth is still on a recovery path after an underwhelming performance in the first half of the last fiscal year 2024–25,” he said.
This backdrop, he added, made it essential for the MPC to step in and support demand. “The benign inflation outlook and the moderate growth demand that the MPC continues to support growth.”
Malhotra also flagged two-sided inflation risks: currency pressures from global uncertainty could lead to imported inflation, while a broader slowdown in global demand may help further cool commodity and crude oil prices.
“Overall, while global trade and policy uncertainties shall impede growth, its impact on domestic inflation—while requiring us to be vigilant—is not expected to be of high concern,” he added.
The next MPC meeting is scheduled for June 4–6, followed by subsequent meetings on August 5–7, September 29–October 1, December 3–5, and February 4–6, as the RBI continues to track inflation and growth closely in a volatile global environment.
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