RBI Projects Stable Inflation and Growth Amid Global Uncertainties

The Reserve Bank of India forecasts inflation to remain under control, with Consumer Price Index (CPI) projected at 4.0% for 2025-26. India's foreign exchange reserves are strong, and manufacturing shows revival signs. However, global uncertainties may impact GDP growth, revised to 6.5%.

In its latest monetary policy announcement, the Reserve Bank of India (RBI) confidently projected a stable inflation scenario for the fiscal year 2025-26. Governor Sanjay Malhotra announced a Consumer Price Index (CPI) inflation forecast of 4.0 percent, contingent on a normal monsoon, signaling an improvement in price stability from current levels.

The Governor pointed out that a sharper-than-expected decline in food inflation has provided a comfort cushion. However, the RBI remains alert to risks posed by global uncertainties and weather disruptions. The RBI's forecast anticipates inflation at 3.6 percent for the first quarter of FY26, progressing to 4.4 percent by the fourth quarter, with a positive outlook for food inflation due to seasonal declines in vegetable prices.

On the external economy front, the RBI noted strong foreign exchange reserves of USD 676.3 billion, sufficient for 11 months of imports. This resilience is bolstered by robust remittance inflows and service receipts. Despite a decline in net FDI inflows to USD 2.5 billion in the current fiscal period, investment primarily from countries such as Singapore and the USA underscores confidence in Indian sectors like manufacturing and financial services.

The central bank also highlighted the mixed nature of foreign portfolio investment (FPI), noting net inflows of USD 1.7 billion, bolstered by the debt segment despite equity outflows. Meanwhile, increased external commercial borrowings and non-resident deposits have outpaced previous years' figures.

Divergence in economic sectors prompted the RBI to adjust its FY26 GDP growth forecast to 6.5 percent, down from an earlier 6.3–6.7 percent. The bank noted global trade disruptions might pressure merchandise exports, though services exports are expected to persistently deliver positive results. Manufacturing, enjoying a revival, sees promising investment, while urban consumption is gradually improving thanks to increased discretionary spending.

In conclusion, the RBI underscored that a global slowdown and trade uncertainties impact commodity prices and net exports, thus influencing domestic growth. The bank's revised quarterly growth estimates reflect an anticipatory response to these global and domestic challenges.

(With inputs from agencies.)