The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Friday concluded its three- day meeting while retaining India’s Consumer Price Inflation (CPI) forecast for the financial year 2025 at 4.8 per cent with Q4 at 4.4 per cent. For the next financial year, FY26, the inflation is projected at 4.2 per cent.
In his post-MPC meet speech, RBI Governor Sanjay Malhotra said that the central bank has noted that inflation has declined supported by a favourable outlook on food and continuing transmission of past policy action and that it is expected to further moderate in 2025-26, gradually aligning with the target. “Headline inflation, after moving above the upper tolerance band in October, has since registered a sequential moderation in November and December. Going ahead, food inflation pressures, absent any supply side shocks, should see a significant softening due to good kharif production, winter-easing in vegetable prices and favourable rabi crop prospects,” Sanjay Malhotra added. In October, India’s retail inflation, based on the Consumer Price Index (CPI), had surged to a 14-month high of 6.21 per cent, driven by a sharp rise in food prices.
“Assuming a normal monsoon, CPI inflation for the financial year 2025-26 is projected at 4.2 per cent with Q1 at 4.5 per cent; Q2 at 4.0 per cent; Q3 at 3.8 per cent; and Q4 at 4.2 per cent. The risks are evenly balanced,” the newly appointed RBI governor said.
Sanjay Malhotra on Friday announced that the MPC members, after a three-days of deliberations, decided unanimously to reduce the policy repo rate by 25 basis points from 6.50 per cent to 6.25 per cent. Consequently, he said, the standing deposit facility (SDF) rate shall be 6.00 per cent and the marginal standing facility (MSF) rate and the Bank Rate shall be 6.50 per cent. The MPC also decided unanimously to continue with the neutral stance and remain unambiguously focussed on a durable alignment of inflation with the target, while supporting growth.
Reacting on the same, Madan Sabnavis, Chief Economist, Bank of Baroda, said, “Inflation at 4.2 per cent will be contingent on both a good monsoon and limited impact of imported inflation. There could be an upside here given global uncertainty, and needs to be watched. The RBI has also clearly stated to the market that it is not targeting an exchange rate and will also ensure orderly liquidity in the market.”
Nilesh Shah, MD Kotak Mahindra AMC, said, “The RBI assured the market on durable liquidity and cut rates by 25 bps as inflation remains within the higher range of mandate. The jugalbandi between monetary policy which is becoming less tight and fiscal policy which is becoming less loose should be supportive for growth and yet managing inflation.”
Suman Chowdhury, Executive Director & Chief Economist, Acuité Ratings & Research, said, “RBI MPC has taken a favourable outlook to the inflation trajectory with a forecast of 4.2 per cent for FY26, a 60 bps reduction to the estimate of 4.8 per cent for FY25. The tone of the governor’s speech seems to suggest that the approach to inflation targeting will be a little more flexible.”