RBI raises FY27 inflation forecast to 5.2%
What's the story
The Reserve Bank of India (RBI) has revised its Consumer Price Index (CPI) inflation forecast for the fiscal year 2026-27 to 5.2%. This is an increase from the earlier estimate of 5%. The revision indicates that the central bank expects stronger price pressures in the near future. Along with this, RBI has also raised its real GDP growth projection for FY27 to a robust 7.1%, up from an earlier estimate of 6.7%.
Inflation predictions
Inflation forecast for FY27
The RBI anticipates that inflation will remain high in the latter half of this fiscal year.
The CPI inflation is projected at 4.9% in Q2, 6% in Q3, and 5.7% in Q4 of FY27.
This upward revision comes as part of the central bank's broader strategy to address rising price pressures with tighter monetary policy measures such as raising interest rates and adjusting its policy stance accordingly.
Policy adjustments
Repo rate hiked to 5.5%
In response to the heightened inflation forecast, the RBI Monetary Policy Committee has decided to hike the repo rate by 25 basis points (bps) to 5.5%.
It has also changed its policy stance from "Neutral" to "Calibrated Tightening."
Higher interest rates make borrowing more expensive and can moderate demand in the economy.
This shift indicates that the central bank is taking a more cautious approach toward managing monetary policy in light of rising price pressures and global inflation trends.
Inflation monitoring
Broader inflation monitoring
The RBI is closely monitoring not just individual price increases but also whether inflation is becoming broader and more persistent across the economy.
To do this, it is looking at indicators such as core inflation and diffusion indices.
These metrics help determine if price increases are limited to a few categories or spreading across a wider range of goods and services in the Indian economy.