The Reserve Bank of India’s Monetary Policy Committee reduced its FY27 inflation estimate. The committee lowered the forecast from 5.1% to 5%. Earlier in June, RBI projected 5.1% inflation for the financial year. However, global crude oil price declines influenced the latest revision. Additionally, softer supply-side pressures supported the lower inflation outlook. RBI kept the benchmark repo rate unchanged at 5.25%.
The central bank continues monitoring geopolitical uncertainties and rising inflation pressures closely.
Quarterly inflation estimates show mixed outlook
According to RBI’s projections, Q1 inflation may reach 4.1%. Earlier estimates placed it at 4.2%. Meanwhile, Q2 inflation may remain at 4.7% compared with the previous 5.1% estimate. Furthermore, Q3 inflation stays unchanged at 5.9%. However, Q4 inflation may rise slightly to 5.5%. Earlier, RBI estimated Q4 inflation at 5.4%. RBI said inflation risks remain balanced. The central bank expects headline inflation to peak during the third quarter.
After reaching the highest level, inflation may decline later. RBI also reduced the FY27 core inflation estimate.
The central bank lowered core inflation expectations from 4.7% to 4.3%.
Inflation remains RBI’s biggest concern amid rising costs
The first quarter recorded inflation slightly below expectations. This showed limited impact from cost pressures.
Food items and fuel prices mainly drove inflation higher. However, RBI found no major signs of broader price pressure.
Governor Sanjay Malhotra said core inflation remains low, excluding precious metals.
Moreover, RBI expects headline inflation to rise in the near term. Food and fuel costs may drive this increase. Afterward, inflation may decline from its peak during the third quarter. Goldman Sachs and Standard Chartered expected RBI to reduce inflation estimates. They cited recent crude oil price weakness. However, IDFC First Bank expected no change in inflation projections.
Meanwhile, RBI maintained interest rates at 5.25% for the fourth consecutive review. The central bank also retained a neutral stance.
Global tensions and demand pressures challenge price stability
For Malhotra and his team, inflation remains the primary concern. Retail inflation increased to 4.38% in June.
It stood at 3.93% during May. June marked the first time in 17 months above RBI’s 4% target.
Food prices, fuel costs, West Asia tensions, and weaker monsoon conditions increased inflation pressure. Food inflation crossed 5% in June. Transport inflation also increased from 1.7% in May to 4.3%. Later, crude oil price increases and global tensions pressured the rupee. However, the currency recovered some losses afterward.
Malhotra said inflation and price stability remain RBI’s biggest priorities. He added that RBI will first focus on maintaining price stability. He also defended measures aimed at attracting foreign capital. These steps generated around $32 billion.
Most funds arrived through Foreign Currency Non-Resident Bank deposits, known as FCNR(B) deposits.
Companies prepare price hikes as inflation worries continue
The Finance Ministry recently issued its first official warning about wider inflation. It said inflation has moved beyond food items.
The ministry highlighted higher fuel costs and poor weather effects on consumer prices.
Meanwhile, energy costs remain elevated due to the Iran war. Companies expect further price increases amid uncertainty. Havells India Limited increased prices by up to 8%. Tata Consumer Products Limited also raised salt prices by nearly 7%. These price increases come during the festive season from August to November. During this period, consumer spending usually rises, especially around Diwali. Many companies generate nearly one-third annual sales during this period. Therefore, higher demand may allow companies to pass increased costs to consumers.
Ultimately, rising prices will test India’s consumption strength and policymakers’ ability to manage inflation pressures.
