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The RBI (Reserve Bank of India) has raised its growth forecast for real GDP in FY26 by 0.5% to 7.3%. At the same time, it has lowered its forecast for CPI inflation by 0.6% to 2%. Governor Sanjay Malhotra reported that the MPC (Monetary Policy Committee) has mutually decided to reduce the repo rate by 0.25% from 5.50% to 5.25%.
Malhotra explained, “MPC sees significant inflation moderation. Global uncertainties and tariffs could slow H2 FY26 growth onward.” He pointed to strong domestic drivers like good agriculture outlook, GST tweaks, low inflation, healthy corporate balance sheets and supportive monetary conditions fuelling activity. Reforms will keep the progress going.
On external fronts, services exports are doing well, but merchandise exports are facing challenges. Trade deal talks could bring more benefits, but there are risks from global issues. Overall, we expect the real GDP growth for FY26 to be 7.3%, up from 6.8%. In Q3, we predict growth of 7.0%, compared to the previous estimate of 6.4%. For Q4, the forecast is 6.5%, up from 6.2%. In Q1 FY27, we expect growth to be 6.7%, an increase from 6.4% and for Q2, the growth is now estimated at 6.8%. The risks are balanced.
HDFC economists noted Q3 FY26 softness in PMI, IIP, steel, cement and power demand, but stick to the 7.3% FY26 GDP call, citing H1 strength and low deflator. They see H2 moderation from fading export or government spending front-loading and tariff hits. FY27 growth at 6.5%.
Must Read: RBI Repo Rate Cut 2025: Impact on Loans, Deposits & Markets
CPI Inflation Projection Sharply Lower
The Governor highlighted the October 2025 CPI at a record-low 0.25%, with a broad-based decline. Food supply looks solid, higher kharif output, good rabi sowing, ample reservoirs and healthy soil moisture. Commodity prices (barring metals) are expected to ease.
"Inflation is lower than expected for October because food prices have fallen," said Malhotra. The CPI (Consumer Price Index) for Financial Year 2026 is now projected to be 2.0%, down from 2.6%. In the third quarter, it is expected to be 0.6%, lower than the previous estimate of 1.8%. For the fourth quarter, the CPI is now at 2.9%, down from 4.0%. In the first quarter of Financial Year 2027, the CPI is projected at 3.9% instead of 4.5% and in the second quarter, it will be 4.0% (new estimation).
CareEdge Ratings predicts that inflation will be 4% for the fiscal year 2027, based on the current economic situation. The new CPI series, which starts in 2023-24, is significant, even though the previous year's results were low. Global crude oil prices are stable and there have been cuts in GST (Goods and Services Tax). Excess production capacity in China could lead to higher prices. Food prices are expected to remain stable due to support from agriculture. Although the rupee might weaken temporarily, it is balanced by lower oil import costs, even with the exchange rate around USD/INR 90.
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