RBI: Cuts FY27 CPI Forecast by 10 Bps to 5.0%; Flags Monsoon, Oil Risks

The Reserve Bank of India on Wednesday lowered its consumer price inflation projection for 2026-27 by 10 basis points to 5.0%, citing lower-than-expected inflation readings and easing underlying price pressures, while cautioning that weather-related disruptions and volatile crude oil prices remain key risks.

The central bank now expects inflation in the July-September at 4.7%, lower than the 5.1% estimate made in June. The projection for October-December was retained at 5.9%, while the forecast for January-March was raised marginally to 5.5% from 5.4%. Inflation for the April-June of 2027-28 was projected at 5.3%.

"June inflation turned out to be 30 basis points lower than our expectations," RBI Governor Sanjay Malhotra said while presenting the Monetary Policy Committee's resolution following its August 3-5 meeting.

The RBI also revised its projection for core inflation lower, to 4.3% for 2026-27 from 4.7% estimated earlier. Core inflation, which excludes food and fuel, remained unchanged at 3.9% in May and June despite the pressure from higher input costs.

The governor added that inflation excluding precious metals remained even lower, at 2.3%-2.5%, indicating that broader underlying price pressures have remained contained.

According to the RBI, the rise in headline inflation during recent months was largely driven by food and fuel prices.

"The increase in food inflation was broad-based, with most constituents witnessing price pressures during May-June," Malhotra said. "Fuel inflation also rose, driven by revision in retail prices following the sharp spike in international energy prices."

The increase in energy prices also contributed to higher inflation in selected services categories, including restaurant charges, the central bank said.

Despite the downward revision to its inflation forecasts, the RBI warned that risks to the outlook remain elevated.

"Going forward, El Niño's impact on temporal and spatial rainfall distribution continues to remain a risk, although proactive supply management and adequate stocks of foodgrains could provide buffers," Malhotra said.

The governor also highlighted uncertainty surrounding energy markets.

"Global oil prices have remained volatile, with sharp two-way movements triggered by geopolitical developments, blurring the near-term outlook," he said.

According to the RBI, broader inflation pressures remain relatively modest for now. However, the central bank warned that persistently higher food, fuel and input costs could eventually translate into more widespread price increases across the economy.

RBI CPI Projections