RBI Inflation FY26 Forecast: MPC lowers inflation aim to 3.1% despite Trump's tariff threats

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) on Wednesday said that inflation is estimated to go up during the last quarter of FY26, as food prices remain volatile, especially vegetable prices. While the geopolitical uncertainties have abated, global trade marked by incoming tariffs continues to weigh in, the RBI noted.For the full year FY26, the RBI has projected headline inflation at 3.1%, lower than the 3.70% forecast made in June. However, the CPI is expected to stand at 4.9% in FY27, breaching the apex bank's 4% target.Quarter-wise estimates are: 2.1% in Q2, 3.1% in Q3-, and 4.4% in Q4. The central bank maintained that risks to the outlook are “evenly balanced.” The RBI MPC also noted that the core inflation has remained steady at 4%. Retail inflation in India in June cooled to 2.10%, a 77-month low, largely due to a sharp decline in food prices. Food inflation also recorded a negative print. Despite easing in price pressures, the Reserve Bank of India (RBI) decided to keep policy repo rate unchanged on Wednesday, at 5.50%.This easing aligns with earlier forecasts in the Economic Survey and favourable macroeconomic indicators, in the first quarter of FY26.The latest move by Sanjay Malhotra & Co. marks the fourth straight rate cut in 2025 as the RBI stays focused on supporting growth amid improving inflation conditions and ongoing global economic uncertainty. The central bank also maintained its “neutral” stance, suggesting continued policy support to aid economic growth amid global trade uncertainties.The decision to maintain an accommodative stance comes despite concerns over trade tensions and tariff-related disruptions. The RBI, earlier, had said it would continue managing liquidity to ensure adequate credit flow, especially to productive sectors.The central bank, in its annual report for FY25 had said that it expects inflation to remain moderate in FY26, helped by favourable base effects and easing supply-side pressures. It also cautioned that the outlook remains subject to risks, particularly from monsoon performance and global geopolitical developments.Meanwhile, in its July Bulletin, the central bank had mentioned that a 10% rise in global crude oil prices could increase India’s headline inflation by around 20 basis points on a contemporaneous basis, as per empirical estimates. The increase in oil import dependency warrants measures not only to contain the spillovers to domestic prices but also to gradually transit towards alternative sources of fuel for more efficient management of domestic fuel prices in the long run, it said.