RBI Forecasts Modest Inflation Amid Geopolitical Uncertainty

The Reserve Bank of India anticipates retail inflation at 2.1% for the fiscal year 2025-26, citing risks from geopolitical tensions and energy price volatility. A technical rise is expected in Q4, while food prices remain stable. However, core inflation steadiness offers optimism amid broader challenges.

On Friday, the Reserve Bank of India (RBI) projected a retail inflation rate of 2.1% for the current fiscal year, 2025-26, while cautioning about potential 'upside risks' linked to geopolitical tensions and unpredictable energy prices.

RBI Governor Sanjay Malhotra, in his Monetary Policy Statement, detailed that although the consumer price index (CPI) reflected low inflation through November and December, a marginal increase was observed. The bank foresees inflation dynamics shifting in the final quarter of this fiscal year; while the year's average is targeted at 2.1%, Q4 inflation is expected to rise to 3.2%.

Looking ahead to the next year, the RBI forecasts Q1 inflation at 4% and Q2 at 4.2%. The Governor also noted that the recent inflation uptick by 1 percentage point is mainly due to slower deflation in the food sector, with core inflation holding at a steady 2.6%. Despite potential risks, optimistic food price outlooks are supported by strong Kharif production and sufficient food grain stocks.