RBI raises GDP growth forecast to 6.7% for 2025-26, inflation expected to ease

The Reserve Bank of India (RBI) on Friday revised its real GDP growth forecast for 2025-26 to 6.7%, citing strong rabi crop output and a revival in industrial activity as key factors driving economic expansion.

Additionally, the central bank expects CPI inflation to moderate to 4.4% in the final quarter of the current fiscal year and decline further to 4.2% in 2025-26.

RBI Governor Sanjay Malhotra stated, "Looking ahead, healthy rabi prospects and an expected recovery in industrial activity should support economic growth in 2025-26."

#WATCH | Making a statement on Monetary Policy, RBI Governor Sanjay Malhotra says, "RBI has estimated that real GDP growth for the next year to be at about 6.7%...."

(Source - RBI) pic.twitter.com/SsY1DknMM4

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He also emphasized the role of domestic demand in sustaining growth. "Among the key drivers on the demand side, household consumption is expected to remain robust, aided by the tax relief in the Union Budget 2025-26," Malhotra noted.

Regarding investments, he highlighted improving conditions in key sectors. “Fixed investment is expected to recover, supported by higher capacity utilization levels, healthy balance sheets of financial institutions and corporates, and the Government’s continued emphasis on capital expenditure,” Malhotra said during his post-Monetary Policy Committee (MPC) address.

However, he cautioned that global uncertainties and climate risks remain potential threats to economic growth.

GDP Growth Projection for 2025-26:

• Q1: 6.7%
• Q2: 7.0%
• Q3 & Q4: 6.5% each
• Overall Growth: 6.7% (with balanced risks)

In December, the RBI had revised its GDP growth forecast to 6.6% from 7.2%, reflecting ongoing global economic challenges.

Malhotra acknowledged that the global economy remains under pressure, even as trade activity shows resilience. He pointed to slower disinflation, geopolitical uncertainties, and policy unpredictability as major hurdles.

Additionally, he highlighted the impact of the strong US dollar on emerging market currencies, including the depreciation of the Indian rupee, stating that the RBI is actively monitoring and stabilizing the currency.

On the domestic front, Malhotra referred to First Advance Estimates, which peg India's real GDP growth at 6.4% for 2024-25, driven by private consumption, a strong services sector, and an agricultural recovery. However, weak industrial growth remains a challenge.

Inflation Outlook:

• 2024-25 CPI Inflation Projection: 4.8% (Q4: 4.4%)
• 2025-26 CPI Inflation Projection: 4.2%
• Q1: 4.5%
• Q2: 4.0%
• Q3: 3.8%
• Q4: 4.2%

Malhotra noted that headline inflation softened in November-December 2024, following its 6.2% peak in October, mainly due to a decline in food inflation, particularly vegetable prices.

Going forward, food inflation is expected to ease further, supported by a good kharif harvest, lower winter vegetable prices, and favorable rabi crop conditions. Core inflation is anticipated to rise slightly but remain moderate.

However, global financial instability, volatile energy prices, and extreme weather events continue to pose risks to the inflation trajectory.

Meanwhile, the RBI Monetary Policy Committee (MPC) has decided to reduce the policy repo rate by 25 basis points (bps) from 6.5 per cent to 6.25 per cent, marking the first rate cut since May 2020.

ALSO READ: RBI cuts policy rate by 25 bps to 6.25 pc, first reduction in five years

The central bank also 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.

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