RBI expects inflation to be 4% or less till September

The Reserve Bank of India’s Monetary Policy Committee on December 5 lowered its inflation forecast for the financial year ending March 2026 to 2.0%, down from 2.6%, acknowledging that price pressures have eased far more than it had expected earlier in the year.

“Headline and core inflation are expected to be at or below 4% mark during the first half of FY27,” said RBI Governor Sanjay Malhotra during his policy address.

Benign inflation at 2.2% and GDP growth at 8% in the first half present a rare goldilocks period, Malhotra added.

The RBI move was broadly in line with expectations.

A CNBC-TV18 poll had shown that 90% of economists expected the RBI to lower its FY26 CPI outlook to the 2–2.5% range, with the rest looking for an even deeper revision.

The change reflects how sharply inflation has cooled in recent months. Consumer inflation fell to 0.25% in October, the lowest year-on-year print in the current CPI series. The headline rate dropped by 119 basis points from September’s 1.44%, driven mainly by a fall in food prices and a lower tax burden after GST cuts.

Food prices have been a key driver of this slide. Food inflation stood at –5.02% in October, compared to –2.33% in September, staying in negative territory for the fifth straight month. Rural food inflation was at –4.85% and urban food inflation at –5.18%. The statistics ministry has linked this drop to the full-month impact of GST reductions and softer prices across categories such as oils and fats, vegetables, fruits, eggs, cereals, footwear and transport and communication.

Many economists now expect inflation to stay well below 4% for most of FY26, even if it edges up from current lows. Suvodeep Rakshit, Chief Economist at Kotak Institutional Equities, recently told CNBC-TV18, “I stick with my annual average of 2.1% for FY26… for the next print we should be close to 1%, and then till March it gradually keeps increasing to roughly around 3.5%. That’s the trajectory I’m looking at for the rest of FY26.”

Others see a similar pattern when they stack their numbers against the RBI’s earlier projections. Kanika Pasricha, Chief Economic Adviser at Union Bank, noted that her team is tracking inflation below the central bank’s earlier path. “The current quarter is at 0.5% versus 1.8% from the RBI. For the next quarter, we are actually close to 2–2.5% versus close to 4% from the RBI,” she said.

The RBI MPC also unanimously decided to cut key policy repo rate by 25 basis points to 5.25%, while maintaining a neutral stance. The GDP is forecast to grow at 7.3% for FY26.