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RBI Sees 2.1% FY26 Inflation, Warns of Q4 Uptick on Base Effects

The Reserve Bank of India has projected retail inflation to average 2.1% for the current financial year 2025-26. However, it forecasts an uptick to 3.2% in the final quarter (January-March 2026), attributing this largely to unfavorable base effects from the previous year. Governor Sanjay Malhotra noted that core inflation remains steady while near-term food supply prospects are positive. Despite muted underlying pressures, the central bank warned that geopolitical tensions and volatile energy prices pose upside risks to the inflation outlook.

Key Points: RBI Projects 2.1% FY26 Inflation, Flags Q4 Rise to 3.2%

  • FY26 inflation projected at 2.1%
  • Q4 FY26 forecast at 3.2% due to base effects
  • Core inflation steady at 2.6%
  • Geopolitical and energy price risks flagged
  • Bright near-term food supply outlook
2 min read

RBI projects retail inflation at 2.1% for FY26; warns of Q4 uptick

RBI Governor projects retail inflation at 2.1% for FY26 but warns of a Q4 uptick to 3.2% due to base effects and geopolitical risks.

RBI projects retail inflation at 2.1% for FY26; warns of Q4 uptick
"Unfavourable base effects... would lead to an uptick in year-on-year inflation in Q4 this year - RBI Governor Sanjay Malhotra"

Mumbai, February 6

The Reserve Bank of India on Friday projected retail inflation for the current fiscal year at 2.1 per cent, even as it flagged potential "upside risks" from geopolitical tensions and volatile energy prices.

Delivering the Monetary Policy Statement, RBI Governor Sanjay Malhotra noted that while headline CPI inflation remained low through November and December, it witnessed a slight hardening.

The central bank expects a shift in the inflation trajectory during the final quarter of the current fiscal. While the annual average is pegged at 2.1 per cent, the projection for Q4 (January-March 2026) stands at 3.2 per cent.

Governor Malhotra explained that this rise is largely technical rather than a surge in current price momentum. "Unfavourable base effects stemming from large decline in prices observed during Q4 of last year, i.e., 2024-25, would lead to an uptick in year-on-year inflation in Q4 this year," the Governor stated.

Looking further ahead into the next financial year, the RBI projected inflation for Q1 at 4 per cent and Q2 at 4.2 per cent.

The Governor highlighted that the recent firming of inflation by 1 percentage point over November and December was "largely driven by the lower rate of deflation in the food crop." However, excluding volatile components like gold, core inflation has remained steady at 2.6 per cent.

The central bank remains optimistic about food prices in the near term due to healthy Kharif production, sufficient buffer stocks of food grains, and adequate reservoir levels across the country.

"Near term outlook suggests that food supply prospects remain bright," Malhotra said, adding that "core inflation, barring potential volatility induced by prices of precious metals, is expected to be range-bound."

Despite the "muted" underlying pressures, the Governor cautioned that the landscape is not without challenges. "Geopolitical uncertainty coupled with volatility in energy prices and adverse weather events pose upside risks to inflation," he warned.

- ANI

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Reader Comments

P
Priya S
The explanation about "unfavourable base effects" is helpful. Often we see headlines about inflation rising and panic, but context matters. If it's a technical rise and not due to new price pressures, that's less worrying. Hope the media reports this nuance clearly.
R
Rahul R
Healthy Kharif production and good buffer stocks are the real heroes here. Our farmers deserve credit for this stability. The focus should remain on supporting them against the "adverse weather events" the Governor mentioned. Monsoon is everything.
M
Michael C
The projection jumping to 4% and 4.2% for next FY's first two quarters is a significant climb. While the overall narrative is optimistic, this forward guidance suggests we shouldn't get too comfortable. Global energy volatility is a genuine threat.
A
Anjali F
As someone managing a household budget, low headline inflation is a relief. But I wish the core inflation figure (2.6%) got more attention. That's what truly reflects the price pressure on regular goods and services we buy every day. It's been steady, which is good.
K
Karthik V
Respectfully, while the RBI's analysis is thorough, I feel there's a bit of complacency. Geopolitical tensions and oil prices aren't just "risks"—they are current realities. Planning should be more aggressive. A slight critique: projections often miss the mark when external shocks hit.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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