RBI Lowers Inflation Projection to 2% for FY26

Mumbai, Dec 5 (PTI) The Reserve Bank on Friday significantly lowered the inflation projection for the current fiscal to 2 per cent from 2.6 per cent estimated earlier as the economy continues to witness rapid disinflation.

For the first time since the adoption of Flexible Inflation Targeting (FIT) in 2016, average headline inflation for a quarter at 1.7 per cent in Q2 of 2025-26, breached the lower tolerance threshold (2 per cent) of the inflation target (4 per cent).

It dipped further to a mere 0.3 per cent in October 2025, an all-time low.

"The faster than anticipated decline in inflation was led by correction in food prices, contrary to the usual trend witnessed during the months of September-October. Core inflation (CPI headline excluding food and fuel) remained largely contained in September-October, despite continued price pressures exerted by precious metals," RBI Governor Sanjay Malhotra said.

He was announcing the decision of the Monetary Policy Committee.

Excluding gold, core inflation moderated to 2.6 per cent in October.

Overall, the decline in inflation has become more generalised, the governor said.

On the inflation outlook, Malhotra said food supply prospects have improved on the back of higher kharif production, healthy rabi sowing, adequate reservoir levels and conducive soil moisture.

Barring some metals, international commodity prices are likely to moderate going forward, he added.

"Overall, inflation is likely to be softer than what was projected in October, mainly on account of the fall in food prices," he said.

Considering all these factors, Malhotra said retail (CPI) inflation for 2025-26 is now projected at 2 per cent with Q3 at 0.6 per cent; and Q4 at 2.9 per cent.

CPI-based retail inflation for Q1 of 2026-27 and Q2 are projected at 3.9 per cent and 4.0 per cent, respectively, he said.

The underlying inflation pressures are even lower as the impact of increase in price of precious metals is about 50 bps, Malhotra said, and added the risks are evenly balanced.