Key Points:
- RBI GDP growth forecast raised to 6.8% for FY26.
- Inflation outlook cut to 2.6%, well below 4% target.
- Repo rate unchanged at 5.5%, stance remains neutral.
The Reserve Bank of India (RBI) on Wednesday raised its gross domestic product (GDP) growth forecast for 2025-26 to 6.8%, up from 6.5% estimated earlier. The revision in the RBI GDP growth forecast comes on the back of a strong monsoon, resilient economic activity, and Goods and Services Tax (GST) rationalisation.
Announcing the decisions of the Monetary Policy Committee (MPC) after a three-day meeting, RBI Governor Sanjay Malhotra said the policy repo rate will remain unchanged at 5.5%. The stance has been maintained as “neutral,” with all members voting unanimously to hold rates steady.
“Economic activity has remained resilient with real GDP surprising on the upside at 7.8% and GVA at 7.6% for Q1 this year,” Malhotra said.
Inflation seen at record low
Alongside the upward revision in the RBI GDP growth forecast, the RBI sharply lowered its retail inflation forecast. Headline Consumer Price Index (CPI) inflation is now projected at 2.6% for 2025-26, down from 3.1% estimated in August. The forecast reflects easing food prices and the impact of GST rationalisation.
Malhotra said inflation has turned “even more benign” after falling to an eight-year low of 1.6% year-on-year in July 2025. Prices rose slightly to 2.1% in August, marking the first increase in nine months, but inflation remains well below the 4% target.
The RBI expects CPI inflation at 1.8% in the second quarter, 4% in the fourth quarter, and 4.5% in the first quarter of 2026-27.
Policy mandate and targets
The central bank’s mandate from the government is to maintain CPI-based retail inflation at 4%, with a margin of 2% on either side. Inflation has remained below 4% since February this year, reaching a six-year low of 2.07% in August.
The RBI’s latest projections suggest that inflationary pressures will stay subdued through most of the current fiscal year, providing room for steady growth alongside the revised RBI GDP growth forecast.
Quarterly growth projections
The central bank sees GDP growth at 7% in the second quarter of FY26, 6.4% in the third quarter, and 6.2% in the fourth quarter. For the first quarter of FY27, growth is projected at 6.4%.
The growth forecast upgrade reflects the strength of domestic demand, favorable agricultural output due to a good monsoon, and policy support through GST rationalisation.
Background
India’s retail inflation has remained below the midpoint of the RBI’s target band for seven consecutive months, aided by easing food prices and a favorable base effect. At the same time, economic activity has surprised on the upside, with GDP and gross value added (GVA) exceeding expectations in the first quarter of the fiscal year.
The latest policy review indicates that the RBI is prioritising stability, with no immediate changes in interest rates, while projecting steady growth and low inflation over the next year. The optimistic RBI GDP growth forecast further highlights the resilience of the Indian economy.
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