RBI Signals Tougher Stance with 5.2% FY Inflation Forecast and Higher Rates

New Delhi – In its latest monetary policy briefing, the Reserve Bank of India projected CPI inflation of 5.2% for the fiscal year 2026-27, reflecting heightened food and energy price dynamics. Governor Sanjay Malhotra warned that the inflation scenario has deteriorated relative to the previous year, with supply‑side uncertainties adding to the pressure.

The MPC’s forward‑look suggests CPI will stand at 4.9% in the second quarter, jump to 6.0% in the third quarter, and settle near 5.7% in the fourth quarter. For the following fiscal year, the RBI expects a 5.6% CPI rise in the opening quarter, while core inflation for the current year is pegged at 4.4%.

August CPI rose from 4.5% to 4.8%, spurred by rapid price increases in food staples and fuel. Core inflation also registered an upward tick, indicating that cost pressures are spreading across more sectors of the economy.

The central bank highlighted that food inflation now extends beyond a narrow set of items; commodities such as sugar and onions have seen notable surges. Fuel inflation was further aggravated by an adverse base‑effect.

Data for August showed a core CPI of 4.2%, with a core‑excluding‑precious‑metals index of 2.9%. The RBI cautioned that supply‑side risks—weak monsoon performance, lingering El Niño influences, elevated energy prices, and robust commodity markets—could keep inflationary forces alive in the coming months.

The share of items in the CPI basket with inflation rates above 4% has steadily climbed, reaching roughly 37% in August, signalling a widening of price pressures.

Governor Malhotra concluded that the inflation outlook is far less benign than last year’s, forecasting an average CPI of about 5.8% over the next three quarters and core inflation hovering around 4.4%. In line with this assessment, the RBI raised the repo rate by 25 basis points to 5.50% to restore policy balance.