RBI MPC Meeting: Inflation Estimated At 4.2% For FY26

The Reserve Bank of India’s (RBI) monetary policy committee (MPC) meeting concluded on February 7, 2025. Key decisions were announced policy rates, inflation, and growth, among others.

In his first meeting as RBI Governor, Sanjay Malhotra declared a 25 basis point (bps) reduction in the repo rate to 6.25 per cent. This was the first rate cut in nearly five years. The policy stance remains neutral in order to maintain a balance between economic growth and inflation management.

Inflation Projections for FY26

RBI has forecast consumer price inflation (CPI) at 4.2 per cent in FY26, indicating a modest slowdown. The Q4 FY25 inflation estimate was reduced from 4.5 per cent to 4.4 per cent, maintaining the FY25 inflation projection of 4.8 per cent.

Inflation for Q1 FY26 is projected at 4.5 per cent, down from the previous estimate of 4.6 per cent. It is expected to ease to 4 per cent in Q2 and 3.8 per cent in Q3 before rising slightly to 4.2 per cent in Q4, in line with the RBI’s medium-term target.

The central bank said that a robust kharif harvest, decreased winter vegetable prices, and favourable rabi crop conditions are projected to reduce food inflation pressures. Also, core inflation is likely to remain moderate, supported by the continued impact of past monetary policy measures.

GDP Growth Outlook For FY26

RBI has forecast real GDP growth of 6.7 per cent for FY26, fuelled by strong agricultural output and a rebound in industrial activity.

With robust economic momentum, GDP growth is expected to reach 6.7 per cent in Q1 of FY26 and 7 per cent in Q2. In both the third and fourth quarters, growth is anticipated to slow to 6.5 per cent, sustaining consistent sectoral growth.

Narinder Wadhwa, managing director and CEO of SKI Capital Services, said: “The RBI’s 25 bps rate cut aligns with market expectations, signalling a shift toward a more accommodative stance. The 6.4 per cent GDP growth projection indicates a stable economic outlook. Given the current growth-inflation dynamics, another 25 bps cut could be on the table later this year, in April, especially if inflation remains under control and global conditions allow for further easing.”