RBI Raises FY27 Inflation Forecast To 5.1% On Higher Crude Oil Assumptions

The Reserve Bank of India (RBI) has raised its inflation forecast for FY27, citing elevated crude oil prices and global uncertainties. The Monetary Policy Committee (MPC) announced the revised projection on June 5, 2026.

Despite the upward revision in inflation expectations, the central bank kept the repo rate unchanged at 5.25%. The move reflects a balance between managing price pressures and maintaining policy stability.

Revised Inflation Forecast for FY27

The RBI now projects consumer price inflation at 5.1% for FY27, up from its earlier estimate of 4.6%. Core inflation, which excludes food and fuel, is estimated at 4.7%.

The upward revision reflects evolving macroeconomic conditions and persistent cost pressures. The updated forecast indicates a higher inflation trajectory compared to earlier expectations.

Quarterly Inflation Outlook

The central bank has also revised its quarterly inflation projections for FY27. Inflation is expected to average 4.2% in Q1 FY27, compared to the earlier estimate of 4%.

It is projected to rise to 5.1% in Q2 FY27, 5.9% in Q3 FY27, and moderate to 5.4% in Q4 FY27. The earlier estimates for Q2 and Q3 FY27 were 4.4% and 5.2%, respectively, indicating a notable upward revision across most quarters.

Impact Of Crude Oil Price Assumptions

A key factor behind the revised inflation outlook is the increase in assumed crude oil prices. The RBI has raised its benchmark assumption to $95 per barrel from $85 per barrel in the previous policy review.

Higher crude oil prices directly influence fuel costs and transportation expenses, which can feed into broader inflation. Every $10 per barrel increase in crude oil prices may add around 45 basis points to inflation.

Currency Assessment and External Implications

The RBI also commented on the valuation of the Indian rupee amid ongoing volatility. RBI Governor Sanjay Malhotra stated that it is reasonable to assume the rupee may not be overvalued, while noting that some measures suggest it could be undervalued.

Currency movement remains influenced by factors such as crude oil prices, foreign capital flows, and geopolitical developments. Higher oil prices may also widen the current account deficit by 30–40 basis points, impacting external balances.

Read More: RBI Unveils Measures to Boost Foreign Inflows Amid Rupee Pressure.

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Conclusion

The RBI’s revised inflation forecast highlights the impact of external factors, particularly crude oil prices, on domestic price trends. While inflation expectations have increased, the central bank has maintained the repo rate at 5.25% to ensure policy continuity.

The updated projections reflect a higher inflation path across multiple quarters in FY27. Overall, the policy stance indicates a focus on monitoring evolving global and domestic developments.

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