The Reserve Bank of India (RBI) has kept its GDP growth forecast for FY26 at 6.5 percent, while significantly lowering its inflation projection to 3.1 percent from 3.7 percent, reflecting confidence in the economy. In its third bi-monthly monetary policy announcement, RBI Governor Sanjay Malhotra highlighted the positive effects of an above-normal southwest monsoon, declining inflation, and favorable financial conditions.

Malhotra noted that supportive monetary, fiscal, and regulatory policies, along with robust government capital expenditure, are boosting demand. The services sector remains vibrant, with construction and trade expected to maintain momentum. Despite global uncertainties, including geopolitical tensions and volatile financial markets, domestic growth remains resilient.

The RBI projects quarterly GDP growth at 6.5 percent for Q1, 6.7 percent for Q2, 6.6 percent for Q3, and 6.3 percent for Q4 in FY26, with Q1 FY27 at 6.6 percent. Rural consumption is holding strong, though urban discretionary spending remains subdued.

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On inflation, Malhotra emphasized that Consumer Price Index (CPI) inflation fell to a 77-month low of 2.1 percent in June, driven by falling food prices. The RBI now forecasts CPI inflation at 3.1 percent for FY26, with Q2 at 2.1 percent, Q3 at 3.1 percent, and Q4 at 4.4 percent. Inflation for Q1 FY27 is projected at 4.9 percent, with risks evenly balanced.

The governor stressed the need for robust policy frameworks to support India’s global economic ambitions, extending beyond monetary policy alone.

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