The Reserve Bank of India's latest bi-monthly monetary policy has revised the GDP growth forecast upwards to 6.7 per cent and lowered the inflation projection to 5 per cent, navigating persistent global economic uncertainties.
Key Points
- RBI marginally raises GDP growth forecast for current fiscal to 6.7 per cent.
- Inflation projection for 2026-27 slightly lowered to 5 per cent by RBI.
- Global economic turbulence and re-escalating conflicts pose risks to domestic activity and inflation.
- Domestic economic activity exhibits resilience despite persistent global uncertainty.
- El Nino's impact on rainfall and volatile global oil prices remain key inflation risks.
The Reserve Bank of India on August 5, Wednesday, marginally raised the GDP forecast for the current fiscal to 6.7 per cent while slightly lowering the inflation projection to 5 per cent.
In the August bi-monthly monetary policy announced Wednesday, the central bank also cautioned that the turbulent global economic environment is likely to have some bearing on domestic economic activity.
In the June policy, the Reserve Bank of India (RBI) had projected the GDP growth for fiscal 2026-27 at 6.6 per cent and inflation at 5.1 per cent.
Although generalised inflation pressures continue to remain modest so far, the risks of higher food, fuel and other input prices translating into a broad-based increase in inflation persist, it said.
RBI's Economic Outlook Amidst Global Challenges
Announcing the decision of the Monetary Policy Committee, RBI Governor Sanjay Malhotra said the supply-side pressures caused by the West Asia conflict have eased somewhat since June 2026, leading to withdrawal of temporary measures undertaken by the government and normalisation of key input supplies.
"However, the re-escalation of the conflict since the first week of July has amplified volatility in energy prices and renewed uncertainty about supply chains," he said.
Amidst persistent global uncertainty, domestic economic activity has exhibited resilience as reflected by the high frequency indicators available for Q1:2026-27, he said.
The real GDP growth for 2026-27 is projected at 6.7 per cent, with Q1 at 7.0 per cent; Q2 at 6.4 per cent; Q3 at 6.5 per cent; and Q4 at 6.8 per cent, Malhotra said, adding that the risks are evenly balanced.
Inflation Risks and Projections
On inflation, he said the impact of El Nino on temporal and spatial rainfall distribution continues to remain a major risk, although proactive supply management and adequate stock of food grains should provide comfort.
Global oil prices have remained highly volatile with sharp two-way movements triggered by geopolitical developments, blurring the near-term outlook.
"Although generalised inflation pressures continue to remain modest so far, the risks of second-round impact of higher food, fuel and other input prices translating to broad-based inflation persist," the governor added.
He said the Consumer Price Index (CPI) inflation for 2026-27 is projected at 5 per cent with Q2 at 4.7 per cent; Q3 at 5.9 per cent; and Q4 at 5.5 per cent.
Inflation for Q1:2027-28 is projected at 5.3 per cent with risks being evenly balanced.
Core inflation is projected at 4.3 per cent for 2026-27.
Core inflation, excluding precious metals, is projected to be lower, though it is likely to align with core inflation from Q4.
