RBI Expects CPI Inflation to Average 4% in FY26 Amid Strong Disinflationary Trends
The Reserve Bank of India’s Monetary Policy Committee (MPC) has reinforced a confident outlook on consumer price inflation (CPI), projecting an average of 4% for FY2025-26, with quarterly readings expected to range between 3.6% and 4.4%, according to minutes of the April MPC meeting released on April 23. The forecast signals a strong alignment with the RBI’s long-term inflation target of 4% (+/- 2%), supported by continued easing in food prices and cooling global crude oil markets.
This benign inflationary forecast comes on the back of a sharp deceleration in CPI—from 5.2% in December 2024 to 3.6% in February 2025—primarily driven by a seasonal correction in vegetable prices and continued deflation in fuel costs. Members of the MPC unanimously observed that the current price environment offers monetary headroom to maintain a growth-supportive stance while remaining within the bounds of the central bank’s inflation mandate.
Highlights:
RBI projects FY26 CPI inflation at 4% average, within 3.6–4.4% range quarterly.
CPI declined to 3.6% in February from 5.2% in December 2024.
Easing food prices and fuel deflation are key drivers of the downward trend.
Deputy Governor and MPC Members Cite Sustained Disinflation Momentum
M Rajeshwar Rao, Deputy Governor of the RBI, described the inflation outlook as “benign”, referencing consistent disinflation across key food categories. He noted that vegetable price corrections, alongside further easing in April, have underpinned the decline in headline CPI.
Rao emphasized that the fall in inflation is not transitory but appears to be part of a durable shift, aligning CPI with the 4% target. He cited a combination of moderating price expectations, strong rabi crop yields, and effective supply-side responses as enablers of sustained disinflation. “The significant softening of headline inflation and greater confidence of a benign outlook, especially on food prices, signals a likely durable alignment of inflation with the target rate,” he stated.
Highlights:
Deputy Governor Rao calls inflation trend “benign” and durable.
Headline CPI decline driven by seasonal food corrections and fuel deflation.
April data also points to continued easing in food price pressures.
Monetary Flexibility Strengthened as Price Expectations Moderate
Rajiv Ranjan, Executive Director at the RBI and MPC member, echoed the positive outlook, stating that India has made “considerable progress on the disinflation front.” He said this success has created space for the MPC to focus more actively on growth support, given that household and business inflation expectations—on both three-month and one-year horizons—have moderated significantly.
The softening of forward-looking inflation sentiment, he said, is vital in strengthening monetary transmission and securing macroeconomic stability. This sentiment was reinforced across the MPC panel, with members broadly supporting a wait-and-watch stance while remaining ready to respond if inflation risks resurface.
Highlights:
Moderated inflation expectations signal price stability.
Room for monetary policy to remain growth-supportive.
Confidence in inflation containment reflected across MPC members.
External Disinflationary Pressures Bolster India’s Inflation Management
MPC member and economist Saugata Bhattacharya highlighted how global commodity trends, especially the decline in industrial metal and crude oil prices, are supporting India’s inflation moderation. Quoting forecasts from the International Energy Agency (IEA), Bhattacharya said that global oil supply is likely to exceed demand in 2025, exerting downward pressure on fuel prices.
He further noted that trade distortions and dumping of cheaper goods into India, while posing risks to domestic manufacturing, are simultaneously reducing input costs, particularly for intermediate goods and consumer durables. This imported deflation could cushion retail inflation, provided currency volatility and import dependence are managed prudently.
Highlights:
Global crude and metal price declines strengthen disinflation trend.
IEA forecasts oil supply to outpace demand in 2025.
Dumping of cheap goods into India may lower input costs.
CPI Comfortably Within RBI’s Target Band for FY26
Professor Ram Singh, another MPC member, reinforced that the CPI trajectory is well-anchored and will remain comfortably within the RBI’s targeted inflation range. He emphasized that the current price dynamics support monetary policy stability, and the RBI’s forward-looking approach should be to remain data-driven and nimble in the face of potential global shocks.
The broader consensus within the MPC is that inflationary pressures have structurally eased, thanks to strong policy coordination, timely food supply interventions, and a favorable monsoon outlook. As India enters FY26 with expectations of 4% average CPI, monetary authorities appear committed to a balanced approach—preserving macroeconomic stability while reinforcing growth impulses.
Highlights:
CPI forecast aligns with RBI’s target range for FY26.
Policy interventions and monsoon optimism support disinflation.
MPC remains committed to stability with flexibility.
