RBI Monetary Policy Meeting: FY26 GDP Growth Forecast Unchanged at 6.5%, Inflation Estimate Cut to 3.1%

RBI MPC Meeting: In its latest monetary policy announcement on Wednesday, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) decided to keep the repo rate unchanged at 5.5%, maintaining its policy stance as 'Neutral'. This marks a continuation of the central bank's cautious approach following a cumulative 100 basis points (bps) rate cut earlier in the year aimed at supporting economic growth amid global uncertainties and domestic challenges.

RBI Monetary Policy Meeting August: Repo Rate Unchanged at 5.5%, FY26 GDP Outlook Remained at 6.5%

RBI Governor Sanjay Malhotra, in his statement following the MPC meeting, said that the decision to hold the rate was unanimous among committee members. He noted that while the inflation trajectory remains largely stable, inflation is expected to rise further in the coming months, warranting a wait-and-watch strategy. Importantly, core inflation has remained steady at around 4%, which has offered the RBI some comfort in holding off on further policy tightening.

The central bank also kept its real GDP growth projection for FY2025-26 (FY26) unchanged at 6.5%, reflecting continued optimism about the Indian economy's recovery momentum.

The quarterly GDP growth breakdown for FY26 remains as previously projected: 6.5% in Q1, 6.7% in Q2, 6.6% in Q3, and 6.3% in Q4. Governor Malhotra emphasized that the economic outlook is supported by favorable factors, including an above-normal southwest monsoon, improved agricultural prospects, and generally congenial macroeconomic conditions.

RBI MPC Meeting: CPI Inflation Forecast Reduced To 3.1%

RBI sharply revised its Consumer Price Index (CPI) inflation forecast for FY2025-26 (FY26), lowering it to 3.1% from the earlier projection of 3.7%.

The quarterly breakdown of the revised CPI projections indicates significant moderation in inflation, particularly in the first half of the fiscal year. For Q2 FY26, inflation is now projected at 2.1%, down from the earlier estimate of 3.4%, while Q3 FY26 is forecasted at 3.1%, compared to the previous 3.9%. Interestingly, the forecast for Q4 FY26 remains unchanged at 4.4%, indicating some price pressure may return towards the end of the fiscal. Although the RBI did not revise the Q1 FY26 figure, it had earlier been projected at 2.9%. Looking ahead, Q1 FY27 inflation is projected to rise to 4.9%.

"Despite sharply lowering its inflation forecast to 3.1% from 3.7% earlier, RBI's decision to keep rates steady emanates from their focus on one-year-ahead expected inflation that's looking comfortably above 4%, while growth in their view has held up well, despite global uncertainty. However, focusing on one-year-ahead expected inflation appears increasingly misplaced in an evolving world - particularly as the global landscape continues to shift toward a disinflationary bias in Asia," said Ms. Madhavi Arora, Chief Economist, Emkay Global Financial Services.

In its June policy update, the Reserve Bank of India (RBI) lowered its inflation forecast for FY26 to 3.7%, down from the earlier estimate of 4.0%. Inflation projections for the first half of the year saw sharper cuts, with Q1 FY26 reduced by 70 basis points to 3.5%, and Q2 FY26 cut by 50 basis points to 3.4%. This indicates the RBI expects lower price pressures, possibly due to easing food and fuel costs.

At the same time, the RBI kept its GDP growth forecast for FY26 unchanged at 6.5%, showing continued confidence in the economy's strength. The quarterly growth estimates remain steady, with growth expected at 6.5% in Q1, 6.7% in Q2, 6.6% in Q3, and 6.3% in Q4. This shows a balanced outlook with stable growth and easing inflation.