RBI MPC raises India FY27 CPI inflation forecast to 5.1% from 4.6% earlier

The Monetary Policy Committee of the Reserve Bank of India on Friday sharply raised its forecast for CPI inflation in the current financial year that started in April, mainly due to higher crude oil prices. The MPC raised its inflation forecast for 2026-27 to 5.1%, from 4.6% earlier.

“CPI inflation remains below the target despite global shock, as the pass-through to domestic prices has been limited. While the baseline projections point towards headline inflation firming up towards the upper tolerance level in Q3:2026-27 (October-December), the impact of the supply shock is expected to wane Q4 (January-March) onwards,” RBI Governor Sanjay Malhotra said while announcing the Monetary Policy Statement.

The rate-setting panel, which kept the policy repo rate unchanged at 5.25%, raised its projections for all four quarters of 2026-27. It raised the forecast for April-June to 4.2% from 4.0%, for July-September to 5.1% from 4.4%, for October-December to 5.9% from 5.2%, and for January-March to 5.4% from 4.7% earlier.

CPI core inflation, excluding food and beverages, and fuel, for 2026-27 has been revised up to 4.7% from 4.4% earlier.

The RBI said its inflation forecasts are subject to upside risks from global supply chain disruptions, commodity price shocks, uncertainty over the spatial and temporal distribution of the southwest monsoon, and El Niño conditions. The India Meteorological Department has forecast the southwest monsoon to be below normal at 90% of the long-period average.

However, adequate stock of food grains and satisfactory reservoir levels provide some comfort, the governor said.

The Indian crude oil basket has averaged around $110 per barrel during April-May, and indications are that average oil prices for 2026-27 will be substantially higher than those assumed in the previous policy statement, Malhotra said.

The April Monetary Policy assumed an Indian crude oil basket price of $85 a barrel for 2026-27.

The governor said the partial pass-through of high global crude oil prices to domestic pump prices of petrol and diesel, and increase in prices of several inputs such as commercial LPG, industrial raw materials, chemicals, base metals, rubber, and plastic products, could exert upward pressure on CPI inflation in the coming months.

India’s headline inflation rate rose to a 13-month high of 3.48% in April, but remained below the RBI’s medium-term inflation target of 4%.

The underlying inflation pressures continue to remain benign at this juncture, Malhotra said. However, generalisation of inflation through second-round effects on expectations and wages is a distinct possibility, warranting close vigilance. The outlook also remains clouded by the forecast of a subnormal southwest monsoon and risks associated with El Niño, the governor said.