RBI to Lower Inflation Target Amid Falling CPI Rates

The RBI may reduce its inflation target for FY26, according to CareEdge Ratings. CPI inflation might average 3.1% in FY26, lower than the projected 3.7%. Driven by declining food prices, inflation fell to 2.1% in June. Geopolitical and trade factors could influence future commodity prices.

According to a recent CareEdge Ratings report, the Reserve Bank of India (RBI) is expected to lower its inflation target for the financial year 2025-26 during the upcoming August Monetary Policy Committee (MPC) meeting. The report predicts that Consumer Price Index (CPI) inflation will average around 3.1 per cent in FY26, a significant dip from the current RBI projection of 3.7 per cent.

The report also highlighted that for FY27, inflation is expected to rise to approximately 4.5 per cent due to a low base effect from FY26. Headline CPI inflation notably decreased to 2.1 per cent in June, the lowest rate since January 2019, due to declining food prices and a favourable base effect from the previous year.

While the food and beverages category in the CPI basket entered deflation, falling by 0.2 per cent year-on-year in June, core inflation experienced a slight increase to 4.4 per cent. However, this wasn't broad-based and was driven largely by the rising prices of precious metals. The report suggests that inflation could exceed 4 per cent in the fourth quarter of FY26 as base effects wane.