The RBI Monetary Policy Committee (MPC) states that food supply prospects have improved on the back of higher kharif production, healthy rabi sowing, adequate reservoir levels
With inflationary pressures continuing to ease, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has lowered its inflation estimate for the current financial year (FY26) to 2 per cent. The improved outlook is on the back of bright food supply prospects.
The central bank noted that the consumer price index (CPI) inflation for 2025-26 is now projected at 2.0 per cent, with the third quarter (Q3) at 0.6 per cent and Q4 at 2.9 per cent. CPI inflation for Q1FY27 and Q2FY27 is projected at 3.9 per cent and 4.0 per cent, respectively. The apex bank estimated the headline inflation to print at 2.6 per cent in October.
“Since the October policy, the Indian economy has witnessed rapid disinflation, with inflation coming down to an unprecedentedly low level. For the first time since the adoption of flexible inflation targeting (FIT), average headline inflation for a quarter at 1.7 per cent in Q2FY26, breached the lower tolerance threshold (2 per cent) of the inflation target (4 per cent),” highlighted Sanjay Malhotra, Governor, RBI.
After a detailed assessment of the evolving macroeconomic conditions and the outlook, the MPC voted unanimously to reduce the policy repo rate by 25 basis points (bps) to 5.25 per cent with immediate effect. Real gross domestic product (GDP) growth for 2025-26 is projected at 7.3 per cent, with Q3 at 7.0 per cent and Q4 at 6.5 per cent.
“The policy decision was likely dictated by a higher weightage given to below-target inflation, which had provided a sizeable real rate buffer. Backing the move, inflation forecasts were lowered, while growth numbers were marked-to-market given the strong H1FY26 momentum,” stated Radhika Rao, Executive Director and Senior Economist, DBS Bank.
Brighter Food Supply Prospects
Turning to the inflation outlook, the RBI MPC noted that food supply prospects have improved on the back of higher kharif production, healthy rabi sowing, adequate reservoir levels and conducive soil moisture. Barring some metals, international commodity prices are likely to moderate going forward. Overall, inflation is expected to be softer than what was projected in October, mainly on account of the fall in food prices, the apex bank added.
“The drop in headline inflation below the lower end of the RBI’s target range of 2 to 6 per cent has been driven by food inflation, with fuel inflation also subdued. Core inflation, excluding gold, was 2.6 per cent in October, aided by goods and services tax (GST) cuts, indicating the absence of excess demand pressure. Excess supply-chain capacity globally, particularly in China, also suggests limited upward pressure on goods inflation,” stated Dharmakirti Joshi, Chief Economist, Crisil.
Headline CPI inflation declined to an all-time low in October 2025. The faster-than-anticipated decline in inflation was led by a correction in food prices, contrary to the usual trend observed during September-October. Core inflation (CPI headline excluding food and fuel) remained largely contained in September-October, despite continued price pressures exerted by precious metals. Excluding gold, core inflation moderated to 2.6 per cent in October. Overall, the decline in inflation has become more generalised.
“Inflation paths remain divergent with headline inflation remaining above target in most advanced economies, while pressures in most emerging markets are contained, providing room for accommodative monetary policy,” the Governor added.
Domestic Drivers Of Growth
Domestic factors such as healthy agricultural prospects, continued impact of GST rationalisation, benign inflation, healthy balance sheets of corporates and financial institutions and congenial monetary and financial conditions should continue to support economic activity, the MPC pointed out.
Continuing reform initiatives would further facilitate growth. On the external front, services exports are likely to remain strong, while merchandise exports face some headwinds. The central bank emphasised that external uncertainties continue to pose downside risks to the outlook, while the speedy conclusion of ongoing trade and investment negotiations presents upside potential.
“The RBI’s commitment to remain proactive, objective and consistent amidst the downside risk of softening growth and external uncertainties despite underlying inflation pressures staying lower and upside potential of speedy conclusion of various ongoing trade and investment negotiations, is instilling confidence among industry, highlighted Ranjeet Mehta, Chief Executive Officer (CEO) and Secretary General, PHD Chamber of Commerce and Industry (PHDCCI).
The official statement added that high-frequency indicators suggest that domestic economic activity is holding up in Q3, although there are some emerging signs of weakness in a few leading indicators. Rural demand continues to be robust while urban demand is recovering steadily. Investment activity remains healthy with private investment gaining steam on the back of expansion in non-food bank credit and high capacity utilisation.
The global economy is holding up better than expected, though the earlier frontloading of trade is showing signs of normalising. With inflation easing faster than anticipated and growth pillars broadly intact, the RBI’s latest projections signal a phase of renewed macroeconomic stability.
