The Reserve Bank of India (RBI) on Friday projected a real GDP growth of 6.4% for FY25, with economic activity expected to accelerate in the latter half of the year, driven by improvements in agriculture and manufacturing sectors. For FY26, the RBI forecasts a GDP growth of 6.7%, with quarterly estimates as follows: Q1 FY26 at 6.7%, Q2 FY26 at 7.0%, Q3 FY26 at 6.5%, and Q4 FY26 at 6.5%.
On the inflation front, the central bank expects the Consumer Price Index (CPI) inflation to moderate to 4.8% in FY25, with Q4 FY25 inflation projected at 4.4%. For FY26, CPI inflation is forecasted to ease further to 4.2%, with quarterly projections of 4.5% in Q1 FY26, 4.0% in Q2 FY26, 3.8% in Q3 FY26, and 4.2% in Q4 FY26.
Announcing the highlights of the RBI’s recent Monetary Policy Committee (MPC) meeting, Governor Sanjay Malhotra noted that inflation has already declined, supported by favorable food price outlooks and the ongoing impact of previous monetary policy measures. He anticipates inflation to further moderate in FY26, gradually aligning with the RBI’s target.
Governor Malhotra highlighted that food inflation is expected to ease significantly due to a favorable rabi crop, which will contribute to a stable inflation outlook. Despite challenges from global economic uncertainties, India continues to show economic resilience. However, Malhotra acknowledged that the economy remains vulnerable to external pressures.
The RBI Governor also pointed to positive indicators such as a resilient Manufacturing Purchasing Managers’ Index (PMI) and rising rural demand, while urban demand remains subdued. Key drivers of growth include tax relief measures from the Union Budget, improved agricultural output, strong business sentiment, and continued government policy support.
The RBI also plans to enhance its economic forecasting capabilities by integrating Artificial Intelligence (AI) into its decision-making processes, continuing its flexible inflation targeting framework to ensure macroeconomic stability.
India’s foreign exchange reserves remain strong, exceeding USD 630 billion as of January 31, 2025, which provides an import cover of over 10 months and supports the country’s external stability. The RBI also expects the current account deficit to stay within sustainable levels for the fiscal year, reinforcing a stable macroeconomic environment.
The recent rate cut comes after an extended tightening cycle, during which the RBI raised the repo rate from 4% to 6.5% between May 2022 and May 2023 to combat inflation. The reduction marks a shift towards supporting economic growth while maintaining price stability.
With inflation expected to remain within the RBI’s 4% target range and economic activity set to improve, the central bank’s move is anticipated to provide relief to borrowers and stimulate consumption and investment in the months ahead.
In line with these projections, the RBI’s Monetary Policy Committee (MPC) has decided to cut the policy repo rate by 25 basis points (bps) from 6.5% to 6.25%, marking the first rate cut since May 2020. The stance remains neutral, with Governor Malhotra emphasizing that inflation has moderated and is expected to align with the target in FY26.