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Informist, Wednesday, Oct. 7, 2026

 

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--RBI Malhotra: Revises FY27 CPI inflation forecast to 5.2% from 5.0?rlier
--RBI Malhotra: Revises Jul-Sept CPI inflation forecast to 4.9% from 4.7?rlier
--RBI Malhotra: Revises Oct-Dec CPI inflation forecast to 6.0% from 5.9?rlier
--RBI Malhotra: Revises Apr-Jun FY28 CPI inflation forecast to 5.6% from 5.3?rlier
--RBI Malhotra: Revises Jan-Mar CPI inflation forecast to 5.7% from 5.5?rlier
--RBI Malhotra: Revises FY27 CPI core inflation forecast to 4.4% from 4.3?rlier
--RBI Malhotra: Inflation outlook not as benign as last year
--RBI Malhotra: Core inflation projected at 4.4% for FY27
--RBI Malhotra: See CPI inflation averaging 5.8% for next 3 quarters of FY27
--RBI Malhotra: Difficult to sift between supply-side inflation, 2nd order CPI
--RBI Malhotra: Seeing some evidence of generalised inflation
--RBI Malhotra: Limited evidence of demand side CPI pressure
--RBI Malhotra: Risk to demand side CPI pressure on strong GDP, high credit
--RBI Malhotra: Food prices increases have become more broad-based
--RBI Malhotra: Rise in CPI in recent mos largely due to food, fuel
--RBI Malhotra: Broadening of price pressures in Aug showed in diffusion index
--RBI Malhotra: Near-term outlook shows upcoming supply side pressure on CPI
--RBI Malhotra: Price pressures showing in range of commodities
--RBI Malhotra: Prices pressure visible across a range of commodities
--RBI Malhotra: Early signs of inflation becoming generalised
--RBI Malhotra: Risks to inflation forecasts evenly balanced
--RBI Malhotra: Global inflation to increase sharply

 

NEW DELHI – The Reserve Bank of India Wednesday raised the headline inflation outlook for 2026-27 (Apr-Mar) by 20 basis points to 5.2%, citing it was "clear" that inflation and its outlook were "not benign". The inflation outlook is clouded by monsoon-related uncertainties, risks from El Nino and volatile energy prices, Governor Sanjay Malhotra said. There are early signs of inflation becoming generalised as well, with core inflation also seen rising, Malhotra said. The central bank raised the inflation forecast for Oct-Dec by 10 bps to 6%.

 

"The near-term outlook on inflation points towards continued pressures from supply side on account of the deficient monsoon, ongoing El Nino conditions and high energy and other commodity prices, the pass-through of which is still continuing," the RBI governor said after the fourth bi-monthly meeting of the Monetary Policy Committee for FY27. 

 

Given the inflationary pressures, the RBI's Monetary Policy Committee Wednesday raised the repo rate by 25 bps to 5.50%, the first rate hike in over three years. "The MPC also decided to change the stance to calibrated tightening by a majority of 4-2," Malhotra said. To that extent, the governor said that given the current global context and the macroeconomic scenario, "a rate cut is off the table in the near-term." It will only be a pause or a rate hike depending on the economic conditions, Malhotra said. 

 

"The duration and extent of the rate hike cycle would be contingent on the actual growth-inflation developments and outlook, especially that of underlying inflation, the extent of broadening of price pressures and second-round effects of the supply shock, as also the impact of demand impulses," the governor said. The panel had lowered the repo rate by a cumulative 125 basis points in 2025, the most in a calendar year since 2019. It had last raised interest rates in February 2023. 

 

Malhotra said, "It further observed that in light of available data, it is clear that inflation and its outlook are not benign as they were last year, with headline CPI inflation expected to average almost 5.8% in the next three quarters and core inflation projected at 4.4% this financial year." In this milieu, recalibrating the policy rate is imperative, Malhotra said.

 

The quarterly break-up of the central bank's latest inflation forecasts is as follows--4.9% for Jul-Sept, 6% for Oct-Dec and 5.7% for Jan-Mar. It had previously forecast inflation in the second quarter of FY27 to average 4.7%, the third quarter at 5.9%, and the fourth quarter at 5.5%. Malhotra also projected core inflation to average 4.4% in FY27, 10 bps higher than the earlier projection. The risks are evenly balanced, he said.

 

According to the latest data, headline inflation rose to a 20-month high of 4.82% on year in August from 4.45% in July, surpassing the RBI's medium-term target of 4% for the third consecutive month. CPI inflation was 2.01% in August last year. Based on this data and the RBI's projection, a back-of-the-envelope calculation shows that inflation likely averaged 5.43% in September, data for which will be released Monday. 

 

The rise in inflation has been primarily due to an increase in food and fuel prices on the back of both weather-related uncertainties as well as the West Asia war-related shocks. India has been facing higher oil price pressures after the West Asia war started at the end of February. Global crude oil prices surged to as much as $123 a barrel after the war started from sub-$73 a barrel before Feb. 28. Since then, oil prices have seen much ebb and flow and were trading around $101.61 per barrel Wednesday. 

 

To add to this, India is facing super El Nino conditions this year. The India Meteorological Department said that El Nino conditions are likely to continue strengthening through the end of 2026, causing 'below-normal' rainfall over most parts of India during Oct-Dec. For October, the department has forecast 'below-normal' rains at 85% or less of the long-period average over most of India. The southwest monsoon season (Jun-Sept) has ended, and the country as a whole received 12.6?ficit rains at 759.4 millimetres, the fourth lowest since 2001, the weather bureau has said. 

 

Food inflation, which has not troubled the central bank for the majority of 2024 and 2025, is seen as a worry this year. Food price increases have become more broad-based, along with notable spikes in certain items such as sugar and onion, the RBI said. Fuel inflation also inched up in August, mostly due to unfavourable base effects, it added. "Broadening of prices pressures was visible in the diffusion indices as the weighted share of items recording inflation above 4% increased to about 37% in August 2026," according to the central bank.

 

The RBI said that price pressures are increasingly becoming visible across a range of commodities within the food component, apart from oil. In addition, early signs of inflation becoming generalised are also evident from the increase in core inflation and higher inflation across a larger segment of the CPI basket. Core inflation, which excludes food and fuel items whose prices tend to be volatile, rose to 4.2% in August from 3.9% in July. 

 

As regards supply-side inflation, the Monetary Policy Committee noted that monetary policy primarily acts by curtailing second-round effects which take time to manifest and are difficult to extract from available data. "It may, however, be kept in mind that it is difficult to distinguish between the second-round effects and the indirect impact of supply-side pressures (in production cost through energy and other inputs) as both are present in these indicators," it said.  "While there is some evidence of elevated inflation expectations and generalisation of inflation, there are limited signs of supply-side pressures getting embedded in pricing behaviour," it added. 

 

Summing up, the governor said that the West Asia war, tariff-related uncertainties, elevated bond yields and risks of an unwieldy correction in valuation of artificial intelligence company stocks are keeping global economic sentiments edgy, with risk-off sentiment on emerging market economies like India. Driven by escalating energy costs and rising food prices, global inflation is projected to increase sharply, prompting monetary policy tightening by major central banks, he said.

 

While these factors are weighing on the domestic growth-inflation outlook adversely, the inherent resilience and strength of the Indian economy is helping navigate through these challenging times, Malhotra said. "We shall implement policies that further add to this resilience," the central bank governor said.  End

 

Reported by Priyasmita Dutta

Edited by Akul Nishant Akhoury

 

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