RBI Raises FY27 GDP Growth Forecast to 7.1% From 6.7%; Q2 Pegged at 7.2%, Q3 at 6.9%

The Reserve Bank of India (RBI) has raised its real GDP growth forecast for FY27 to 7.1% from 6.7%, according to news reports. 

 Governor Sanjay Malhotra announced the revision on October 7, increasing the full-year estimate by 0.4 percentage point. The change follows real GDP growth of 7.8% in Q1 FY27, according to the National Statistical Office (NSO).  

The RBI said the quarter was supported by private consumption, fixed investment, merchandise exports and services exports. 

Q2 and Q3 Forecasts Raised 

The RBI raised its Q2 FY27 growth estimate to 7.2% from 6.4%. The Q3 projection was also increased to 6.9% from 6.5%, while the Q4 forecast was retained at 6.8%. 

For Q1 FY28, the central bank lowered its growth estimate to 7.1% from the earlier 7.3%. The revised projections were announced as part of the October monetary policy review. 

Consumption Supports Growth 

Private consumption was a key contributor to growth in the first quarter, with discretionary spending continuing to support demand. The RBI said high-frequency indicators showed economic activity maintaining momentum in Q2, although there was some moderation from Q1. 

Manufacturing activity remained steady despite cost pressures. Strong capacity utilisation, credit flows, and government infrastructure spending were cited as factors supporting investment activity. 

External Risks Remain 

The RBI's higher growth forecast comes against a weaker global backdrop. Global growth is expected to slow this year, while the renewed West Asia conflict has affected economic sentiment. 

Higher crude oil prices have added volatility to financial markets, while trade uncertainty remains. The central bank also flagged risks to agriculture and rural demand from a deficient southwest monsoon and strong El Nino conditions. 

Repo Rate Increased 

The Monetary Policy Committee raised the repo rate by 25 basis points to 5.50% from 5.25% and shifted its policy stance from neutral to calibrated tightening. Four members supported the change, while two opposed it. 

The RBI raised its FY27 CPI inflation forecast to 5.2% from 5.0% and projected core inflation at 4.4%. Malhotra said rate cuts were off the table in the near term, with future policy action depending on inflation and economic conditions. 

Read More: RBI Increases Repo Rate to 5.50%, First Hike Since February 2023! 

Conclusion 

The FY27 growth forecast was raised on stronger domestic activity and first-quarter growth. At the same time, the RBI retained a cautious approach to inflation and external risks. 

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