RBI Adjusts Inflation Forecast Amid Rising Price Pressures

The Reserve Bank of India has revised its retail inflation forecast for the current fiscal year to 5.2%, highlighting increasing price pressures across various commodities. Governor Sanjay Malhotra pointed to supply-side challenges, including adverse weather conditions and fluctuating oil prices, as key factors influencing this adjustment. The central bank also noted early signs of widespread inflation, prompting a decision to raise the key interest rate to 5.5%. This article delves into the implications of these changes and the outlook for inflation in the coming quarters.

By Narendra Chaudhary Oct 7, 2026, 11:41 IST

Mumbai: RBI Raises Inflation Projections

Mumbai: On Wednesday, the Reserve Bank of India (RBI) slightly increased its retail inflation forecast for the current fiscal year to 5.2%, up from the previous estimate of 5%. The central bank noted that price pressures are becoming more apparent across various commodities.

During the announcement of the October bi-monthly monetary policy, Governor Sanjay Malhotra highlighted that the near-term inflation outlook is influenced by supply-side challenges, including the deficient southwest monsoon, El Nino conditions, and fluctuations in international oil prices.

Malhotra stated, "Price pressures are increasingly becoming visible across a range of commodities within the food component, apart from oil."

He also pointed out early indications of inflation becoming widespread, as evidenced by rising core inflation and increased prices across a broader segment of the consumer price index (CPI) basket.

Taking all factors into account, the CPI inflation for 2026-27 is now projected at 5.2%, with estimates of 4.9% for Q2, 6.0% for Q3, and 5.7% for Q4.

For Q1 of 2027-28, inflation is expected to be around 5.6%, with risks appearing balanced.

Core inflation is anticipated to be 4.4% for the current fiscal year ending in March 2027.

CPI-based retail inflation rose to 4.8% in August 2026, up from 4.5% in July, primarily driven by increases in food and fuel prices.

Malhotra noted that food prices have seen broad-based increases, with significant spikes in items like sugar and onions, while fuel inflation also rose in August due to unfavorable base effects.

Core inflation, excluding precious metals, increased to 2.9% in August.

The Governor remarked that the Monetary Policy Committee (MPC) recognized that current inflation data and outlook are not as favorable as they were last year.

In this context, he emphasized the necessity of recalibrating the policy rate, leading the MPC to unanimously decide on a 25 basis points hike in the key interest rate (repo) to 5.5%.

Additionally, the MPC shifted its stance from 'neutral' to 'calibrated tightening'.