RBI projects FY26 inflation at 4.2 pc, down from 4.8 pc estimate in 2024-25

The Reserve Bank on Friday projected the retail inflation at 4.2 per cent for next financial year beginning April while retaining the forecast for 2024-25 at 4.8 per cent.

Unveiling the last bi-monthly monetary policy of this fiscal year, RBI Governor Sanjay Malhotra said food inflation pressures, in absence of any supply side shock, should see a significant softening due to good kharif production, winter-easing in vegetable prices and favourable rabi crop prospects.

He further said core inflation is expected to rise but remain moderate. Also, continued uncertainty in global financial markets coupled with volatility in energy prices and adverse weather events, presents upside risks to the inflation trajectory, he said.

Taking all these factors into consideration, CPI inflation for 2024-25 is projected at 4.8 per cent with Q4 at 4.4 per cent, Malhotra said, after chairing his first Monetary Policy Committee meeting.

"Assuming a normal monsoon next year, CPI inflation for 2025-26 is projected at 4.2 per cent with Q1 at 4.5 per cent; Q2 at 4 per cent; Q3 at 3.8 per cent; and Q4 at 4.2 per cent ," he said, and added the risks are evenly balanced.

In its last monetary policy review, the RBI had projected the headline inflation for 2024-25 at 4.8 per cent with Q3 at 5.7 per cent; and Q4 at 4.5 per cent. CPI inflation for Q1:2025-26 is projected at 4.6 per cent; and Q2 at 4 per cent.

CPI-based inflation declined to a four-month low of 5.22 per cent in December, mainly on account of easing of prices in the food basket, including vegetables. It was at 5.48 per cent in November. It increased from an average of 3.6 per cent during July-August to 5.5 per cent in September and further to 6.2 per cent in October 2024.

The Economic Survey tabled in Parliament last week had suggested India needs to develop climate-resilient crop varieties and enhance yields to increase the production of pulses, oilseeds, tomatoes and onion to ensure long-term price stability. It emphasised that India's food inflation rate has remained firm, driven by a few food items like vegetables and pulses.

The contribution of vegetables and pulses to the overall inflation stood at 32.3 per cent in 2024-25 (April to December).