RBI Cuts FY26 Inflation Forecast to 3.7%; Sees Benign Outlook Amid Falling Food Prices

In a key update from the RBI Monetary Policy Committee (MPC) meeting, the Reserve Bank of India has revised its inflation forecast for FY26, lowering it from 4% to 3.7%. The announcement was made by RBI Governor Sanjay Malhotra on June 6, following the conclusion of the central bank’s policy review.

“Inflation has softened significantly in the last six months and remains well below the target,” Malhotra stated during the press conference.
“Near-term outlook gives us confidence of durable alignment with the target, and also to undershoot the target.”

Cooling Food Prices Behind the Forecast Cut

The decision to lower the Consumer Price Index (CPI) inflation forecast comes as food inflation shows signs of moderation. According to recent data, India’s retail inflation eased to 3.16% in April, down from 3.34% in March. This marked the lowest inflation level in nearly six years, offering a positive signal for policymakers and consumers alike.

Malhotra emphasized that international commodity prices are also easing, in line with the expected slowdown in global growth, which is further contributing to a benign inflation outlook.

Services and Urban Demand Showing Positive Signs

While inflation remains in focus, the RBI Governor also addressed the state of demand in the economy. He pointed out that urban demand is steadily improving, supported by strong performance in the services sector. On the other hand, rural demand remains stable, suggesting a balanced economic momentum across sectors and geographies.

“Services activity should buoy urban demand,” Malhotra added, reinforcing confidence in domestic consumption trends.

Policy Implications and Market Sentiment

With inflation trending downward and consumer prices well under control, the RBI now has greater flexibility in policy decisions moving forward. The reduced inflation forecast aligns with the central bank’s overall tone of cautious optimism and may pave the way for growth-supportive measures in the near term.

This downward revision in inflation projection is being viewed as a positive development for both businesses and consumers, as it reduces the pressure on interest rates and supports a stable macroeconomic environment.

Conclusion

The RBI’s move to lower the FY26 CPI inflation forecast to 3.7% reflects its confidence in the economy’s price stability and growth outlook. Backed by easing food inflation and improving demand trends, this policy update signals a strong footing for India’s financial landscape in the coming months.