RBI raises GDP forecast for FY27 to 7.1%, sees inflation at 5.2% this fiscal

The Reserve Bank of India on Wednesday raised its real GDP growth forecast for the current fiscal by 40 basis points to 7.1%, and projected CPI inflation at 5.2% amid broadening price pressures and risks from the weather and global commodity markets.

Presenting the Monetary Policy Committee's assessment, RBI Governor Sanjay Malhotra said domestic economic activity had remained resilient despite global headwinds, with real GDP growing 7.8% in the first quarter.

Growth was driven by resilient private consumption and strong investment activity, which recorded an almost 12% increase, while net exports also made a positive contribution, he said.

"Some weakness is, however, observed in segments such as non-durable goods and domestic air passenger traffic," Malhotra said. "With focus on expanding market access and diversification, merchandise exports registered higher double-digit growth during July and August."

The RBI projected GDP growth at 7.2% for the second quarter, 6.9% for the third quarter and 6.8% for the fourth quarter. Growth in the first quarter of the next fiscal has been projected at 7.1%, with risks evenly balanced.

"Global headwinds from protracted geopolitical tensions, elevated International commodity prices, additional friction in global trade and tightening of global financial conditions may weigh on growth outlook," Malhotra added.

Inflation outlook

Malhotra said CPI inflation increased to 4.8% in August from 4.5% in July, largely due to higher food and fuel inflation.

Food price increases have become more broad-based, with notable spikes in items such as sugar and onion, he said.

Core inflation also increased to 4.2% in August after remaining unchanged at 3.9% for three consecutive months. Core inflation excluding precious metals rose to 2.9%.

"The near-term outlook on inflation points towards continued pressures from supply side," Malhotra said.

The RBI has projected CPI inflation at 4.9% in the second quarter, 6% in the third quarter and 5.7% in the fourth quarter. Inflation for the first quarter of the next fiscal has been projected at 5.6%, with risks evenly balanced.

The MPC, meanwhile, unanimously decided to raise the benchmark repo rate by 25 basis points to 5.5% and shifted its policy stance to "calibrated tightening" from neutral.

The hike is the first by the MPC since February 2023.

A calibrated tightening stance indicates that rate cuts are off the table for the foreseeable future, while any further rate increases would be gradual and selective.

The repo rate, at which the RBI lends short-term funds to banks, now stands at 5.5%.