RBI MPC Policy: Central bank revises inflation estimate downwards to 2.6% for FY26

RBI MPC Policy: The Reserve Bank of India (RBI) revised inflation forecast downward to 2.6% for 2025–2026 from 3.1% that was earlier projected with Q2 and Q3 at 1.8%, and Q4 at 4%. Consumer Price Index (CPI) inflation for Q1 next year, 2026-27 is projected at 4.5%. The risks are evenly balanced, said Governor of the RBI, Sanjay Malhotra today.

Here are the quarterly estimates:

Q2FY26: Cut to 1.8% from 2.1%

Q3FY26: Cut to 1.8% from 3.1%

Q4FY26: Cut to 4.0% from 4.4%

CPI inflation estimates for Q1FY27 reduced to 4.5% from 4.9%

The headline CPI inflation dropped to its lowest level in eight years at 1.6% (year-on-year) in July 2025, before climbing to 2.1% in August – marking its first rise after a period of nine months.

Sanjay Malhotra noted that inflation conditions have remained mild during 2025-2026 so far, with actual results proving to be considerably lower than their forecasts. The low inflation rate can be mainly attributed to a significant decrease in food inflation, supported by enhanced supply capabilities and government actions to effectively oversee the supply chain, while core inflation has stayed mostly stable, with August's figure at 4.2%. This is in spite of ongoing price pressures on precious metals such as gold and silver.

Malhotra explained that regarding the inflation outlook, the progress of the southwest monsoon has been positive, with healthy reef sowing, sufficient reservoir levels, and comfortable stockpiles of food grains likely to stabilize food prices. The recent adjustments to GST rates may also contribute to a decline in prices for various items in the CPI basket. Overall, the inflation outcome is expected to be lower than the projections made in August, largely due to the GST rate reductions and favourable price trends.

RBI Monetary Policy 2025

The Monetary Policy Committee (MPC) reached a unanimous decision to maintain the policy repo rate within the liquidity adjustment facility (LAF) at 5.50%. Consequently, the standing deposit facility (SDF) rate will continue to be 5.25%, while both the marginal standing facility (MSF) rate and the Bank Rate will remain at 5.75%. Sanjay Malhotra stated that the MPC also opted to uphold a neutral stance.

The 57th meeting of the MPC took place from September 29 to October 1, 2025, presided over by Shri Sanjay Malhotra, the Governor of the Reserve Bank of India. Attending the meeting were MPC members Dr. Nagesh Kumar, Shri Saugata Bhattacharya, Prof. Ram Singh, Dr. Poonam Gupta, and Shri Indranil Bhattacharyya.

The existing macroeconomic conditions and the future outlook have created room for additional measures to support growth. Nevertheless, the MPC observed that the effects of the previously implemented monetary policy decisions and the recent fiscal actions are still unfolding.

Additionally, uncertainties related to trade are beginning to develop. Consequently, the MPC deemed it wise to allow time for the outcomes of these policy measures to materialize and for more clarity to surface before determining the next steps. Thus, the MPC unanimously decided to maintain the policy repo rate at 5.5%. The MPC also chose to keep the stance neutral. However, two members—Dr. Nagesh Kumar and Prof. Ram Singh—expressed the opinion that the stance should shift from neutral to accommodative. The next MPC meeting is planned for December 3 to 5, 2025.

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