Mumbai, Oct 1
The RBI’s monetary policy committee (MPC) on Wednesday slashed its forecast for India’s inflation rate for the financial year 2025-26 to 2.6 per cent from 3.1 per cent in August primarily on account of the GST rate cuts and benign food prices.

RBI Governor Sanjay Malhotra said that “The recently implemented GST rate rationalisation would lead to a reduction in prices of several items in the CPI basket. Overall, the inflation outcome is likely to be softer than what was projected in the August monetary policy committee resolution, primarily on account of the GST rate cuts and benign food prices.”

Addressing journalists after the MPC meeting, Malhotra said that the “overall inflation outlook has turned even more benign in the last few months.”

In terms of the inflation outlook for the second half (H2) of 2025-26, healthy progress of the southwest monsoon, higher kharif sowing, adequate reservoir levels and comfortable buffer stock of foodgrains should keep food prices benign, he added.

Malhotra said that the average headline inflation for 2025-26 is now revised lower from 3.7 per cent and 3.1 per cent projected in the June and August policy, respectively, to 2.6 per cent.

Headline inflation for Q4 2025-26 and Q1 2026-27 too have been revised downwards and are broadly aligned with the target, despite unfavourable base effects. Core inflation for this year and Q1 2026-27 is also expected to remain contained.

The RBI Governor pointed out that headline CPI inflation declined to its eight-year low of 1.6 per cent year-on-year in July 2025 before rising to 2.1 per cent in August – its first increase after nine months. Benign inflation conditions during 2025-26 so far have been primarily driven by a sharp decline in food inflation from its peak of October 2024.

Inflation within the fuel group moved in a narrow range of 2.4-2.7 per cent during June-August. Core inflation remained largely contained at 4.2 per cent in August. Excluding precious metals, core inflation was at 3.0 per cent in August.

He also said that despite the anticipation of moderate momentum during H2, large unfavourable base effects are likely to exert upward pressure on headline CPI inflation, especially in Q4. Considering all these factors, CPI inflation for 2025-26 is now projected at 2.6 per cent with Q2 at 1.8 per cent; Q3 at 1.8 per cent; and Q4 at 4.0 per cent. CPI inflation for Q1:2026-27 is projected at 4.5 per cent.

The RBI Governor further stated that the current macroeconomic conditions and the outlook has opened up policy space for further supporting growth.

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RBI slashes inflation forecast to 2.6 pc in FY26 over GST reforms, benign food prices