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RBI MPC Policy: The Reserve Bank of India (RBI) revised inflation forecast upward to 2.1% for 2025–2026 from 2% that was earlier projected with Q4 at 3.2%. Consumer Price Index (CPI) inflation for Q1 of 2026-27 is projected at 4%, and Q2 at 4.2%. The risks are evenly balanced, said Governor of the RBI, Sanjay Malhotra today.

Here are the quarterly estimates:

Q4FY26: Raised to 3.2% from 2.9%

Q1FY27: Raised to 4.0% from 3.9%

Q2FY27: Raised to 4.2% from 4.0%

Sanjay Malhotra stated today that the headline CPI inflation stayed low in November and December, despite a rise of one percentage point during these two months. This increase was primarily influenced by a decrease in the rate of deflation for food crops excluding gold, resulting in a stable inflation rate of 2.6% in December.

Sanjay Malhotra suggests that the short-term outlook for food supply appears promising due to robust kharif production, adequate buffer stocks of food grains, favorable rabi sowing conditions, and sufficient reservoir levels. Core inflation is likely to remain stable, although it may experience some fluctuations driven by the prices of precious metals.

Further, he added that geopolitical uncertainties, combined with volatility in energy prices and adverse weather conditions, present upward risks to inflation, particularly in the overall inflation trend. Despite the expected subdued momentum, unfavorable base effects from the significant drop in prices recorded in the fourth quarter of the previous year, specifically 2024, are likely to contribute to a rise in year-on-year inflation during the fourth quarter of this year when taking all these factors into account.

“In view of the impending release of the new CPI series (base 2024=100) on February 12, 202622, similar to growth, we will present CPI inflation projection for the full year 2026-27 in the April 2026 Policy Statement,” said RBI, Sanjay Malhotra today.

The headline inflation from November to December stayed beneath the tolerance band of the inflation target. The forecast for CPI inflation in the first and second quarters of 2026-27 remains favorable and close to the inflation target. The minor upward adjustment in the inflation forecast is mainly attributed to the rise in prices of precious metals, which account for approximately 60-70 basis points. The core inflation remains low.

The RBI’s Monetary Policy Committee (MPC) - the six-member rate setting panel - kept repo rates unchanged at 5.25%, and maintained policy stance at 'Neutral'. The standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) remained at 5% and the marginal standing facility (MSF) rate and the Bank Rate at 5.50%.

In its December monetary policy, RBI had cut the repo rate by 25 bps to 5.25% from 5.50%, and decided to continue with a ‘neutral’ stance.

According to the RBI announcement, the MPC decided to maintain the current policy rate. The MPC also concurred to uphold a neutral stance. However, Prof. Ram Singh maintained his perspective that the stance should shift from neutral to accommodative. In the future, the MPC will be influenced by changing macroeconomic conditions and the outlook based on data from the new series as it determines the trajectory of monetary policy. The upcoming MPC meeting is scheduled for April 6 - 8, 2026.

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