RBI Lowers FY27 Inflation Outlook to 5%

The Reserve Bank of India (RBI) on August 5 revised its inflation outlook for FY27 while maintaining the benchmark repo rate at 5.25% for the fourth consecutive policy meeting. The Monetary Policy Committee (MPC) reduced its consumer price inflation (CPI) forecast for the current financial year to 5.0% from 5.1%, saying recent price pressures were largely driven by supply-side factors rather than broad-based demand.

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The MPC also retained its neutral monetary policy stance. Following the decision, the Standing Deposit Facility (SDF) rate remains at 5.0%, while the Marginal Standing Facility (MSF) rate and the Bank Rate continue at 5.50%.

Quarterly Inflation Estimates Revised

The central bank lowered its inflation projection for the second quarter of FY27 to 4.7%, compared with the earlier estimate of 5.1%. The forecast for the third quarter was retained at 5.9%, while the fourth-quarter estimate was revised upward to 5.5% from 5.4%.

Addressing the media after the policy announcement, RBI Governor Sanjay Malhotra said core inflation remained moderate and is expected to ease after reaching its peak during the third quarter. He added that core inflation, excluding precious metals, continues to remain contained despite recent movements in headline inflation.

According to the MPC, consumer price inflation remains above the preferred level but is broadly in line with its assessment. The committee noted that food and fuel-related supply pressures continue to influence inflation without triggering widespread price increases across the economy.

Growth Forecast Raised for FY27

Alongside the inflation revision, the RBI increased its real GDP growth forecast for FY27 to 6.7%, up from 6.6% projected in the previous policy review.

The central bank also raised its first-quarter growth estimate to 7.0% from 6.6%. Growth projections for the third and fourth quarters were left unchanged at 6.5% and 6.8%, respectively.

Malhotra said high-frequency economic indicators suggest domestic activity remained resilient during the first quarter. He noted that early corporate earnings pointed to healthy manufacturing performance, while domestic demand continued to support economic growth.

Global Risks and Monsoon Remain Key Concerns

The RBI said liquidity conditions remained comfortable, with the Liquidity Adjustment Facility (LAF) recording an average daily surplus of around ₹1 lakh crore since the previous MPC meeting.

The Governor stated that supply-side pressures linked to the West Asia conflict had eased to some extent, although renewed geopolitical tensions have increased volatility in global energy markets. He also highlighted uncertainty surrounding the south-west monsoon and El Niño conditions, which could affect agricultural output in the coming months.

While the RBI acknowledged that the domestic economy continues to show resilience, it said the outlook remains subject to global developments, weather-related risks and evolving inflation trends. These aspects will continue to influence future monetary policy decisions in balancing price stability and growth.