RBI retains FY26 growth at 6.5%; lowers inflation forecast to 3.1%

Mumbai: The Reserve Bank on Wednesday retained the GDP growth projection for the current fiscal year at 6.5 per cent while lowering the inflation forecast to 3.1 per cent from 3.7 per cent.

Unveiling the third bi-monthly monetary policy for 2025-26, RBI Governor Sanjay Malhotra said the above normal southwest monsoon, lower inflation, rising capacity utilisation, and congenial financial conditions continue to support domestic economic activity.

The supportive monetary, regulatory and fiscal policies, including robust government capital expenditure, should also boost demand. The services sector is expected to remain buoyant, with sustained growth in construction and trade in the coming months.

"Growth is robust and as per projections, though it is below our aspirations. The uncertainties of tariffs are still evolving. Monetary policy transmission is continuing. The impact of the 100 bps rate cut since February 2025 on the economy is still unfolding," the Governor said.

He further said the domestic growth is holding up and is broadly evolving along the lines of assessment even though some high-frequency indicators showed mixed signals in May-June.

Rural consumption remains resilient while urban consumption revival, especially discretionary spending, is tepid, he said.

Malhotra said the headwinds emanating from prolonged geopolitical tensions, persisting global uncertainties, and volatility in global financial markets pose risks to the growth outlook.

"Taking all these factors into account, real GDP growth for 2025-26 is projected at 6.5 per cent, with Q1 at 6.5 per cent, Q2 at 6.7 per cent, Q3 at 6.6 per cent, and Q4 at 6.3 per cent," he said.

Real GDP growth for Q1 2026-27 is projected at 6.6 per cent. The risks are evenly balanced.

On inflation, the governor said Consumer Price Index (CPI) declined for the eighth consecutive month to a 77-month low of 2.1 per cent in June, driven primarily by a sharp decline in food inflation.

"The inflation outlook for 2025-26 has become more benign than expected in June," he said.

The RBI said CPI inflation for 2025-26 is projected at 3.1 per cent with Q2 at 2.1 per cent; Q3 at 3.1 per cent; and Q4 at 4.4 per cent.

Retail inflation for Q1 2026-27 is projected at 4.9 per cent. The risks are evenly balanced.

Malhtora added that as the Indian economy strives to attain its rightful place in the global economy, stronger policy frameworks across domains, and not just limited to monetary policy, will be pivotal in its journey.