RBI Raises FY27 Inflation Forecast To 5.1%; Repo Rate Unchanged At 5.25%

The Reserve Bank of India (RBI) on Thursday revised its consumer inflation forecast for FY27 upward to 5.1% from the earlier estimate of 4.6%, reflecting concerns over elevated commodity prices, global uncertainties and weather-related risks.

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Announcing the Monetary Policy Committee's decision, RBI Governor Sanjay Malhotra said the inflation outlook has become less favourable compared to the previous policy review. The central bank also retained the repo rate at 5.25%, with the MPC unanimously voting to keep rates unchanged.

The RBI now expects inflation to average 4.2% in the first quarter of FY27, 5.1% in the second quarter, 5.9% in the third quarter and 5.4% in the final quarter of the financial year. These estimates are higher than the projections released during the previous policy review.

Core Inflation Seen At 4.7%

Governor Malhotra said core inflation is projected at 4.7% for FY27. He noted that several factors continue to pose risks to the price outlook, including geopolitical developments, supply-chain disruptions, volatility in commodity markets, uncertainty regarding the southwest monsoon and the possibility of El Niño conditions.

At the same time, the RBI said adequate foodgrain stocks and comfortable reservoir levels provide some support to the inflation outlook and could help limit pressure on food prices.

Retail Inflation Remains Below Target

The Governor highlighted that headline retail inflation remained below the RBI's medium-term target during March and April 2026.

Consumer Price Index (CPI)-based inflation stood at 3.4% in March and 3.5% in April after rising from 3.2% in February. Food inflation increased moderately during the period, while fuel inflation remained subdued as retail petrol and diesel prices were unchanged.

Core inflation remained stable at 3.7% during March and April. Excluding precious metals, core inflation was lower at around 2.1%-2.2%, indicating relatively contained underlying price pressures in several segments of the economy.

Higher Oil Prices Influence Outlook

A key factor behind the upward revision is the rise in crude oil prices. Malhotra said the Indian basket of crude averaged around $110 per barrel during April and May 2026.

According to the RBI, current market conditions suggest that average oil prices during FY27 could remain significantly above the assumptions used in the previous monetary policy assessment. The central bank also pointed to higher input costs and a sharp rise in wholesale price inflation during April as signs of emerging inflationary pressures.

Alongside the rate decision, the MPC retained its "neutral" policy stance, allowing flexibility to respond to evolving domestic and global developments.The central bank will review the growth, inflation and liquidity conditions at its next MPC meeting scheduled to be held on August 3-5, 2026.