The Reserve Bank of India (RBI) has revised its inflation forecast for the 2025–26 financial year downwards to 4.0% from its previous estimate of 4.2%. This was due to a significant improvement in the food inflation outlook, as per RBI Governor Sanjay Malhotra.
"Headline inflation eased in January-February 2025 after food inflation sharply corrected," Malhotra pointed out. He pointed out that previous fears of Rabi crop have now subsided. The second advance estimates indicate a record wheat harvest and higher production of pulses. With firm Kharif arrivals, these are likely to bring about a continued softening of food prices.
Malhotra also referred to a sharp decline in inflation expectations at the household level and decreasing crude oil prices as other indications of a healthy inflation trajectory. But he warned that external factors and weather-related supply shocks can still pose risks to the prognosis.
Based on normal monsoon conditions, the central bank expects Consumer Price Index (CPI) inflation to be less than 4.5% during FY26—3.6% in Q1, 3.9% in Q2, 3.8% in Q3, and 4.4% in Q4.
Terming the present world economic situation as "exceptionally uncertain," Malhotra admitted the difficulty this presents for policymaking. Nevertheless, he reaffirmed the RBI's twin focus on price stability and growth.
"Our focus is non-inflationary growth, underpinned by healthy demand-supply dynamics and macroeconomic balance," he added, reassuring that the central bank will remain "agile, decisive, and transparent" in policy decision-making."
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