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Key Points

The RBI is expected to lower its inflation target for FY26 in the upcoming MPC meeting as CPI inflation dropped sharply to 2.1% in June. Food prices entered deflation with vegetables falling 19%, though core inflation edged up slightly. A CareEdge report predicts FY27 inflation may rise to 4.5% due to base effects. The central bank will closely monitor global commodity price risks despite favorable domestic trends.

Key Points: RBI May Cut FY26 Inflation Target to 3.1% in August MPC Meet

  • RBI may revise FY26 inflation target below current 3.7% projection
  • CPI inflation hit 2.1% in June, lowest since 2019
  • Food prices in deflation with vegetables down 19% YoY
  • Core inflation rose to 4.4% but remains narrow-based
2 min read

RBI to lower inflation target for FY26 in upcoming August MPC, inflation to surge to 4.5% in FY27: Report

RBI likely to lower FY26 inflation target to 3.1% as CPI eases, but FY27 may see 4.5% surge due to base effect, says CareEdge report.

"MPC to Lower Inflation Target...CPI inflation to average around 3.1% in FY26 – CareEdge Ratings"

New Delhi, August 4

The Reserve Bank of India (RBI) is expected to revise its inflation target downward for the financial year 2025-26 in the upcoming August MPC (Monetary Policy Committee) meeting, according to a recent report by CareEdge Ratings.

The report highlighted that the Consumer Price Index (CPI) inflation may average around 3.1 per cent in FY26, significantly below the RBI's current projection of 3.7 per cent. For FY27, inflation is expected to remain higher at around 4.5 per cent, due to the low base effect from FY26.

It stated, "MPC to Lower Inflation Target...CPI inflation to average around 3.1 per cent in FY26. Given the low base of FY26, we expect average CPI inflation to be higher, around 4.5 per cent in FY27".

According to the report, headline CPI inflation eased sharply to 2.1 per cent in June, coming in below expectations and marking the lowest level since January 2019. The decline in inflation was primarily driven by continued moderation in food prices and a favourable base effect from the previous year.

Within the CPI basket, the food and beverages category entered into deflation, contracting by 0.2 per cent year-on-year in June. This was led by steep declines in prices of vegetables (-19 per cent), pulses (-12 per cent), spices (-3 per cent), and meat (-1.6 per cent).

Looking ahead, the report mentioned that the food inflation is expected to remain contained, supported by healthy agricultural output and continued base effect support.

Meanwhile, core inflation saw a slight rise to 4.4 per cent in June, but the report clarified that this was not broad-based and was primarily driven by higher prices of precious metals. When gold and silver are excluded, core inflation stands at a more moderate 3.5 per cent.

Despite the global demand slowdown, the report notes that geopolitical developments and trade policy changes could continue to impact commodity prices. Therefore, close monitoring of these factors remains essential.

Overall, the report expects the inflationary environment to remain favourable in the coming quarters. However, CPI inflation could edge above the 4 per cent mark in the fourth quarter of FY26 as the favourable base effect diminishes.

With CPI inflation likely to undershoot the RBI's current FY26 forecast, the central bank may revise its inflation target downward in the upcoming monetary policy meeting.

- ANI

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Reader Comments

P
Priya S
Vegetable prices coming down is such a relief! Last year's onion and tomato prices were killing middle class families. Hope the government continues monitoring food inflation closely. Sabzi mandi rates affect our kitchen more than RBI policies!
R
Rohit P
RBI should be careful about being too optimistic. Global oil prices are unstable and monsoon has been unpredictable. One bad season and food inflation will shoot up again. Better to be conservative in projections.
S
Sarah B
As an expat working in India, I find RBI's inflation management impressive compared to many developed economies. The detailed breakdown of food vs core inflation shows serious policy focus. Hope this stability continues!
K
Kavya N
Gold prices still worrying though! 4.4% core inflation when excluding gold/silver is 3.5%? That's a huge difference. For middle class families buying gold for weddings, this inflation hits hard. RBI should look at this separately.
V
Vikram M
Good analysis but ground reality is different in small towns. My kirana store bills haven't reduced much despite these reports. Maybe metro cities are seeing price cuts but tier-2/3 cities still suffering. RBI should check regional variations too.

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