RBI lowers inflation projection for FY26 to 2%
CPI-based retail inflation for Q1 of 2026-27 and Q2 are projected at 3.9% and 4%, respectively, the RBI Governor said.
The Reserve Bank of India (RBI) on Friday significantly lowered the inflation projection for the current fiscal to 2% from 2.6% estimated earlier, as the economy continues to witness rapid disinflation.
For the first time since the adoption of Flexible Inflation Targeting (FIT) in 2016, average headline inflation for a quarter at 1.7% in Q2 of 2025-26, breached the lower tolerance threshold (2%) of the inflation target (4%).
It dipped further to a mere 0.3% in October 2025, an all-time low.
"The faster-than-anticipated decline in inflation was led by a correction in food prices, contrary to the usual trend witnessed during the months of September-October. Core inflation (CPI headline excluding food and fuel) remained largely contained in September-October, despite continued price pressures exerted by precious metals," RBI Governor Sanjay Malhotra said, as he announced the decision of the Monetary Policy Committee.
Excluding gold, core inflation moderated to 2.6% in October. Overall, the decline in inflation has become more generalised, the governor said.
On the inflation outlook, Malhotra said 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, he added.
"Overall, inflation is likely to be softer than what was projected in October, mainly on account of the fall in food prices," he said.
Considering all these factors, Malhotra said retail (CPI) inflation for 2025-26 is now projected at 2%, with Q3 at 0.6%, and Q4 at 2.9%.
CPI-based retail inflation for Q1 of 2026-27 and Q2 are projected at 3.9% and 4%, respectively, he said.
The underlying inflation pressures are even lower as the impact of an increase in the price of precious metals is about 50 bps, Malhotra said, and added the risks are evenly balanced.