RBI Retains India’s GDP Growth Forecast At 6.5% For FY26 Despite Global And Tariff Headwinds

The Reserve Bank of India (RBI) kept the repo rate unchanged at 5.50 per cent and maintained its neutral policy stance in its Monetary Policy Committee (MPC) meeting on August 6, 2025.

The central bank has also retained its gross domestic product (GDP) growth forecast at 6.5 per cent for FY26 and expects growth to be 6.6 per cent in FY27.

The RBI Governor said, “Growth is robust and as per earlier projections though 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.”

Malhotra added that government spending, supportive policies, and growth in construction and trade sectors should help demand. However, he also acknowledged that trade issues, tariffs, and geopolitical tensions could hurt the growth outlook, saying, “Prospects of external demand, however, remain uncertain amidst ongoing tariff announcements and trade negotiations.”

“The headwinds emanating from prolonged geopolitical tensions, persisting global uncertainties, and volatility in global financial markets pose risks to the growth outlook,” the RBI Governor said.

Is RBI Being Too Optimistic

Analysts believe the RBI is being too optimistic with its growth forecast. Sandeep Yadav, head of fixed income at DSP Mutual Fund, said the RBI keeping its growth forecast unchanged seems too optimistic given worsening tariffs, weak IT performance, soft quarterly results, RBI’s own acknowledgment of mixed high-frequency data.

“At the very least, risks should have been unevenly balanced,” he said.

Vaqarjaved Khan, CFA and senior fundamental analyst at Angel One, said India’s growth may be hit if trade talks with the US fail. “RBI has retained the growth forecast on the back of resilient rural demand and strong activity on the government capex front. However, if trade talks do not succeed then there can be a hit of 20-40 bps to FY26 GDP growth forecast,” he said.

Namrata Mittal, Chief Economist at SBI Mutual Fund, too thinks that the RBI’s 6.5 per cent GDP growth forecast for FY26 looks optimistic. “The Indian economy is showing clear signs of a slowdown, reflected across high-frequency indicators such as energy demand, logistics movement, tax collection, monetary aggregates, and corporate earnings,” said Mittal. 

She added that high US tariffs could lower prices of tradeable goods globally and in India, affecting companies’ pricing power and wage growth.

“We suspect upcoming GDP data in coming quarters could prompt RBI to provide additional easing and overlook inflationary concerns, if any, one year ahead,” Mittal said.

On the other hand, Ujjal Deb Roy, associate vice president, investment Rresearch & analytics, Aranca does not believe the RBI is being overly optimistic with its decision to retain GDP growth projections. "It is simply too early to revise growth forecasts based on tariff developments alone. While US tariffs pose some downside risks, industry players are still awaiting clarity on the final scope, with ongoing negotiations offering hope of partial relief," Roy said.

Roy noted that India’s manufacturing exports to the US account for nearly 2.2 per cent of India's GDP, and over half of these are in strategic, skill-based categories like engineering, electronics, pharma, and gems and jewellery. "Even in a worst-case scenario, the potential GDP impact may be limited to 30–50 bps, manageable within the current macro framework and sufficient offset avenues in the long-term from increasing domestic consumption and strengthening bilateral relation with other strategic allies," he said.

What Next For RBI

RBI’s ability to support growth goes beyond just interest rate changes, according to Roy. He believes the central bank can play a role through targeted liquidity infusions, easing macroprudential norms where needed, and by ensuring more effective monetary transmission to borrowers, especially MSMEs and households.

However, he emphasised that "much now depends on fiscal policy." He suggested that the government could step in with time-bound GST relief for stressed sectors, front-loaded capital expenditure, and targeted consumption stimulus, particularly in urban areas where discretionary spending continues to remain weak.