In a move that signals improved price stability, the Reserve Bank of India has revised its retail inflation forecast for the financial year 2025-26 to 3.7%. This is a notable reduction from the earlier estimate of 4% and marks the lowest average retail inflation projection by the central bank in recent years. Alongside the downward revision, the RBI also cut the repo rate by 50 basis points to 5.5%, while reducing the cash reserve ratio by 100 basis points.
The revision reflects the RBI’s growing confidence in the country’s economic conditions, supported by easing inflationary pressures, better food supply dynamics, and a favourable global outlook. These factors were highlighted during the second bi-monthly monetary policy review held on June 6,2025.
One of the key drivers of the downward revision in retail inflation is the continued moderation in core inflation. This measure, which excludes volatile components such as food and fuel, has remained under control. RBI Governor Sanjay Malhotra noted that international commodity prices have shown a broad-based decline, contributing to a softening of core inflation.
The governor also mentioned that there has been a decline in input costs across manufacturing and services, which is likely to further reduce the pressure on consumer prices in the near term.
The RBI cited a robust agricultural performance as another reason for the improved inflation forecast. A record Rabi crop, especially in wheat and pulses, is expected to ensure an adequate food supply in the months ahead. Moreover, the early onset and forecast of an above-normal monsoon have added to the central bank’s confidence in food price stability.
The outlook for the Kharif season is also positive, which should support rural consumption while keeping food inflation contained. The RBI highlighted that inflation expectations among rural households have moderated, reflecting growing assurance in the price environment.
Retail inflation in April 2025 dropped to 3.16%, the lowest in nearly 6 years. This is the third consecutive month that inflation has remained below the RBI’s medium-term target of 4%. This downward trend has provided the central bank with space for policy easing and a more optimistic inflation outlook.
The latest consumer price index data for May is scheduled to be released on June 12, 2025, which could further confirm this declining trajectory.
Read More: RBI Cut Repo Rate by 0.50%: Eases Policy Stance to Neutral from Accommodative!
Falling global prices of key commodities have also supported the RBI’s forecast revision. Crude oil and other raw material prices have moderated due to expectations of a global economic slowdown. The RBI stated that this trend is likely to translate into lower domestic input and transport costs, helping contain inflation over the coming quarters.
The central bank also observed that the pass-through effect of falling global prices is becoming more visible in sectors like energy, logistics, and manufacturing, reinforcing the downward trend in inflation.
The RBI provided a detailed breakdown of its revised inflation projections for FY26:
While the inflation forecast for the final quarter nears the upper limit of the RBI’s target range, the overall annual average of 3.7% remains well within the mandated 2% to 6% range.
Despite the positive indicators, the central bank cautioned against complacency. Governor Malhotra pointed to potential risks such as weather-related disruptions during the monsoon season and possible changes in global tariffs that could affect commodity prices.
The RBI stated that it would continue to closely monitor both domestic and global developments and maintain a data-dependent approach to monetary policy in order to safeguard macroeconomic stability.
The Reserve Bank of India’s decision to lower its retail inflation forecast for FY26 to 3.7% reflects growing confidence in the country’s price stability. A combination of easing core inflation, strong food supply prospects, and falling global commodity prices has created a favourable environment for this revision. While risks remain, particularly from weather patterns and global trade dynamics, the RBI’s current outlook suggests a more stable inflation trajectory and an accommodative monetary stance going forward.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
Published on: Jun 6, 2025, 2:56 PM IST
Team Angel One
We're Live on WhatsApp! Join our channel for market insights & updates
Get the link to download the App
