RBI MPC Meeting October 2026: RBI Raises FY27 Inflation, GDP Forecasts After Calibrated Tightening

The Reserve Bank of India (RBI) has raised both CPI inflation and GDP growth forecasts for FY27 despite calibrated tightening of monetary policy for the first time since October 2018. The West Asia war and its extreme long-impending impact have pushed RBI to hike repo rate by 25 basis points to 5.5%, the first time since February 2023. The rate hike cycle has returned in India amidst inflationary pressure, elevated crude oil prices, and multi-decadal high treasury yields. But then why does RBI expect India's economy to continue to showcase resilience?

"The RBI's 25 bps repo rate hike to 5.50%, coupled with the shift to a calibrated tightening stance, signals a meaningful change in the policy cycle. While the hike itself was largely expected, the change in stance is the more important takeaway, indicating that inflation risks are now taking greater precedence. August CPI at 4.82%, elevated crude prices and weather-related risks have clearly narrowed the room for policy accommodation. Importantly, Q1 FY27 GDP growth at 7.8% suggests that the economy can absorb a modest tightening in financial conditions," said Ajit Mishra, SVP-Research, Religare Broking.

RBI Hikes FY27 GDP Growth Target

According to RBI, global economic uncertainty will continue to have some bearing on domestic economic activity. While energy prices and supply chain pressures have continued, their near-term trajectory remains uncertain amidst the lingering West Asia conflict. Their adverse impact is being contained with active diversification of supply sources.

Also, deficient south-west monsoon and strong El Niño conditions pose risks to agriculture sector's outlook and rural demand, although healthy buffer of foodgrains and proactive policy interventions by the government are expected to mitigate the impact. Furthermore, continuing momentum in services and broadly stable employment conditions are likely to support urban demand.

Further, strong capacity utilisation, robust credit flows and the government's thrust on infrastructure are expected to sustain investment activity. While services exports are expected to remain buoyant, bilateral trade agreements should boost merchandise exports.

Taking into above factors, RBI has raised India's real GDP growth forecast to 7.1% for FY27, from earlier forecast of 6.7%. Now, RBI predicts India's GDP to grow at 7.2% in Q2, at 6.9% in Q3 and at 6.8% in Q4.

RBI Hikes India CPI Inflation Target

In case of consumer price index, RBI pointed out that CPI inflation increased to 4.8% in August 2026 from 4.5% in July. While the increase has been predominantly on account of higher inflation in food and fuel groups, core inflation has also picked up indicating some signs of widening price pressures. Food price increases have become more broad based along with notable spikes in certain items such as sugar and onion.

The uptick in fuel inflation in August largely reflected unfavourable base effects. Core inflation increased to 4.2% and core inflation, excluding precious metals, increased to 2.9% in August. The weighted share of items in headline CPI recording inflation above 4% increased steadily to about 37% in August.

In the near term, RBI believes that inflation points towards continued pressures from supply side on account of the deficient monsoon, ongoing El Niño conditions and high energy and other commodity prices, the pass through of which is still continuing.

Accordingly, RBI raised CPI inflation target mildly to 5.2% for FY27, from earlier forecast of 5%. Hence, the central bank predicts CPI at 4.9% in Q2, at 6% in Q3 and at 5.7% in Q4. Inflation for Q1:2027-28 is projected at 5.6% with risks being evenly balanced. Core inflation is projected at 4.4% for 2026-27.

The analysts expect the near-term market impact to remain selective, with rate-sensitive pockets facing pressure, while banks with stronger balance sheets and liability franchises should remain relatively better placed.