RBI has pegged FY27 inflation at 4.6%: What's the reason?
What's the story
The Reserve Bank of India (RBI) has projected a consumer price inflation rate of 4.6% for the fiscal year 2026-27 (FY27). The central bank's forecast comes amid global uncertainties and high commodity prices. The RBI expects inflation to be at 4% in Q1, rising to 5.2% in Q3 before easing to 4.7% in Q4, indicating potential price pressures later this year.
Risk assessment
Inflation projection carries clear upside risks
RBI Governor Sanjay Malhotra has flagged increased risks to the inflation outlook, citing high energy and commodity prices. Deutsche Bank's Chief Economist Kaushik Das also noted that the RBI's inflation projection carries clear upside risks, especially from fuel prices. He observed that the central bank's Q1 estimate of 4% implies no immediate hike in petrol or diesel prices but hints at emerging pressures with a slight rise in Q2 to 4.4%.
New measure
Core inflation estimate introduced for 1st time
In a first, the RBI has introduced a core inflation estimate at 4.4%, showing its focus on underlying price trends. The central bank has said it will provide core inflation projections going forward. Despite the emerging risks, recent months have seen benign inflation levels. "Inflation in January-February continued to remain below target," Malhotra noted while announcing the decision to keep repo rate unchanged at 5.25%.
Growth forecast
GDP growth projections revised downward
The RBI has revised its near-term GDP growth projections downward. For Q1 FY27, the GDP growth estimate has been lowered to 6.8% from 6.9%, and for Q2, reduced to 6.7% from 7%. Overall GDP growth is projected at 6.9% for FY27 with estimates of 7% for Q3, and 7.2% for Q4. Despite these adjustments, high-frequency indicators till February suggest "continued strong momentum," backed by robust services activity, healthy corporate balance sheets, and resilient consumption patterns across urban and rural areas.