RBI Cuts FY26 Inflation Forecast to 2.6% Citing GST Reforms and Stable Food Prices
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The RBI’s Monetary Policy Committee (MPC) on Wednesday lowered India’s inflation forecast for the financial year 2025-26 to 2.6% from 3.1% projected in August. This is mainly due to GST rate cuts and stable food prices.
RBI Governor Sanjay Malhotra said, “The recent GST rate rationalisation will reduce prices of many items in the CPI basket. Overall, inflation is expected to be lower than projected in August, mainly because of GST cuts and benign food prices.”
Speaking to journalists after the MPC meeting, Malhotra added that the “overall inflation outlook has become even more benign in the last few months.”
For the second half (H2) of 2025-26, he said that good southwest monsoon progress, higher kharif sowing, adequate reservoir levels, and sufficient foodgrain stocks should keep food prices stable.
The average headline inflation for 2025-26 is now revised down from 3.7% in June and 3.1% in August to 2.6%.
Headline inflation for Q4 2025-26 and Q1 2026-27 has also been revised downward and is broadly aligned with the target, despite some unfavorable base effects. Core inflation is expected to remain under control during this period.
Malhotra noted that headline CPI inflation fell to an eight-year low of 1.6% year-on-year in July 2025, before rising to 2.1% in August, its first increase after nine months. The low inflation in 2025-26 so far is mainly due to a sharp drop in food inflation from its peak in October 2024.
Inflation in the fuel group stayed in a narrow range of 2.4%-2.7% from June to August. Core inflation remained around 4.2% in August. Excluding precious metals, core inflation was 3.0% in August.
He added that moderate inflation momentum is expected in H2, but large unfavorable base effects could push headline CPI inflation higher, especially in Q4. Considering all factors, CPI inflation for 2025-26 is now projected at 2.6%, with Q2 at 1.8%, Q3 at 1.8%, and Q4 at 4.0%. CPI inflation for Q1 2026-27 is projected at 4.5%.
The RBI Governor also said that the current macroeconomic conditions and outlook create room for policies that can further support growth.
