The Reserve Bank of India (RBI) has revised its inflation forecast for the financial year 2025–26 (FY26), lowering it from the earlier estimate of 4% to 3.7%. RBI Governor Sanjay Malhotra announced the update on Friday, signaling potential relief for Indian households as price pressures continue to ease.
According to the RBI’s Monetary Policy Committee (MPC), the downward revision in inflation is largely attributed to improved food supply conditions. Governor Malhotra stated, “Food inflation is subdued, and core inflation is projected to decline further.”
Highlighting India’s economic resilience, he added, “The Indian economy showcases strength, stability, and opportunity. We are growing rapidly and aspire to accelerate further.”
Alongside this inflation update, the RBI shifted its policy stance from “accommodative” to “neutral,” indicating a more balanced monetary approach moving forward.
In a key policy move, the MPC slashed the benchmark repo rate by 50 basis points to 5.5%—the lowest level seen in three years. This marks the third consecutive rate cut since February, totaling a 100 basis points reduction over the period.
The repo rate, which determines the rate at which banks borrow from the RBI, was last lower than 5.5% in August 2022. The reduction is aimed at stimulating growth amid signs of an economic slowdown, as India’s GDP growth dipped to a four-year low of 6.5% in FY25.
Governor Malhotra stated, “After carefully reviewing the macroeconomic and financial outlook, the MPC decided to lower the repo rate by 50 basis points.”
However, he cautioned that future rate cuts may be limited, saying, “Having reduced the repo rate by 100 basis points in quick succession, the room for additional easing is now constrained.”
This sequence of rate cuts marks the first such trend since the COVID-19 pandemic.
Steady Growth Forecast
Despite the monetary easing, the RBI has maintained its real GDP growth forecast for FY26 at 6.5%, with quarterly estimates as follows: 6.5% in Q1, 6.7% in Q2, 6.6% in Q3, and 6.4% in Q4. “Risks remain evenly balanced,” Malhotra remarked.
The latest rate cut is expected to reduce borrowing costs for home, vehicle, and business loans—potentially boosting consumer spending and revitalizing demand across sectors.
