RBI projects inflation to fall to 4.1% in FY26

The RBI expects consumer price inflation (CPI) to fall to 4.1% in FY26, with stable economic growth despite risks like uneven rainfall and supply chain disruptions. Growth is forecasted to dip slightly to 7.1%, supported by strong government spending and domestic demand. Global volatility could impact India’s growth and inflation by up to 30 basis points.

The Reserve Bank of India (RBI) expects consumer price inflation (CPI) to decline to 4.1% in FY26, from an average of 4.5% in the current fiscal. Despite a higher base in FY25, the RBI predicts stable economic growth next fiscal, driven by a balance between investment, consumption, and controlled inflation.

The RBI’s projections, based on a normal monsoon and no significant disruptions, suggest inflation could average 4.1% in FY26. Factors such as resolving geopolitical conflicts, weaker global demand, falling food and commodity prices, improved supply chains, and proactive government measures may ease inflation.

However, risks remain. These include uneven rainfall, extended geopolitical conflicts, supply chain issues, rising food and metal prices, crude oil price fluctuations, and adverse weather events.

On the economic growth front, the RBI forecasts a slight decline, from 7.2% in the current fiscal to 7.1% in FY26, assuming no major shocks. Strong government spending, revived private investment, and favorable monsoon rains may boost growth further. Robust domestic demand will continue to drive manufacturing and services expansion.

Potential challenges to growth include geopolitical tensions, volatility in global financial markets, slowing global demand, and climate-related disruptions.

If global growth underperforms by 100 basis points, India’s growth and inflation could be 30 and 15 basis points lower, respectively. Conversely, if global disinflation, policy alignment, and trade recovery materialize, and global growth improves by 50 basis points, India’s growth and inflation could rise by around 15 and 7 basis points, respectively.