RBI sees FY27 inflation at 4.6%, flags upside risks

The Reserve Bank of India (RBI) on Wednesday projected retail inflation at 4.6% for the current financial year, warning that risks are tilted to the upside due to rising global energy prices and weather-related uncertainties.

Unveiling the first bi-monthly monetary policy for 2026-27, RBI Governor Sanjay Malhotra said headline inflation remained below the central bank’s 4% target in the early months of the year, coming in at 2.7% in January and 3.2% in February.

However, Malhotra flagged emerging risks to the inflation outlook, particularly from a recent spike in global energy prices linked to geopolitical tensions.

“Although retail prices of petrol and diesel have remained unchanged so far, the pass-through of higher global energy prices has resulted in some increase in prices of a few items,” he said.

The RBI expects food prices to remain comfortable in the near term, supported by strong rabi crop output, adequate reservoir levels and sufficient buffer stocks of food grains.

But the possible emergence of El Niño weather conditions could pose risks to the inflation trajectory, Malhotra said.

Taking these factors into account, the central bank projected consumer price index (CPI) inflation at 4.6% for the year, with quarterly estimates of 4.0% in the first quarter, 4.4% in the second, 5.2% in the third, and 4.7% in the fourth.

In a first, the RBI also provided a projection for core inflation, which it expects at 4.4% for the year.

Core inflation excluding precious metals is even lower, indicating subdued underlying price pressures.

“Risks are on the upside,” Malhotra said, citing global commodity price volatility and weather-related uncertainties.

The central bank projected India's GDP growth for the current financial year at 6.9%, lower than 7.6% estimated for 2025-26, driven by concerns over elevated commodity prices and supply chain disruptions originating from the West Asia crisis.

"Real GDP growth for 2026-27 is projected at 6.9%, with Q1 at 6.8%; Q2 at 6.7%; Q3 at 7.0%; and Q4 at 7.2%," Malhotra said.