RBI Holds Steady Amid Inflation Concerns: FY27 Outlook

Elara Capital's report forecasts India's FY27 CPI inflation to average 4.8-4.9%. It suggests RBI's rate pause will persist unless inflation hits 6%. Rising oil prices and West Asia conflicts may pose risks, while the RBI focuses on liquidity amid rising food and energy costs.

According to a recent report by Elara Capital, India's Consumer Price Index (CPI) inflation is projected to average between 4.8% and 4.9% for fiscal year 2027 (FY27). This forecast implies the Reserve Bank of India (RBI) is likely to maintain its current pause on interest rate changes unless inflation persistently reaches 6%, potentially occurring in the latter half of FY27 if global crude oil prices remain above USD 100 per barrel.

The report notes that the RBI is expected to remain data-driven, maintaining the repo rate unchanged while observing external shocks and currency fluctuations' impacts on the domestic market. In the face of energy shocks and a depreciating rupee, the RBI's options are limited, focusing on sustaining liquidity in the banking system until these factors contribute to retail inflation.

As reported, India's retail inflation reached 3.48% in April 2026, especially due to rising food, education, and restaurant service prices. The study pointed out a rise in food and beverage inflation to 4.0%, with increases in 'readymade' meals and fruits due to higher temperatures and fuel price adjustments. Furthermore, geopolitical tensions in West Asia threaten to exacerbate inflation through increased oil and gas prices, which could lead to further price hikes in aviation and household LPG.