RBI Adjusts Inflation Forecast Amid Positive Agricultural Trends

Mumbai: RBI Lowers Inflation Projection

The Reserve Bank of India (RBI) announced on Wednesday a reduction in its inflation forecast for the current fiscal year, adjusting it to 4 percent from the previous estimate of 4.2 percent. This revision is attributed to favorable agricultural yields and decreasing crude oil prices.

The Consumer Price Index (CPI) based retail inflation saw a significant drop of 1.6 percentage points from December 2024's 5.2 percent to a low of 3.6 percent by February 2025.

Food inflation has also seen a notable decline, reaching a 21-month low of 3.8 percent in February, largely due to a seasonal correction in vegetable prices.

During the announcement of the first bi-monthly monetary policy for the financial year 2025-26, RBI Governor Sanjay Malhotra expressed optimism about the food inflation outlook, citing a substantial seasonal correction in vegetable prices.

Malhotra stated, “While the unexpected drop in food inflation is reassuring, we remain cautious about potential risks stemming from global uncertainties and weather-related disruptions.”

He noted that concerns regarding rabi crop uncertainties have diminished significantly, with second advance estimates indicating record wheat production and increased output of essential pulses compared to the previous year.

With strong kharif arrivals, the governor anticipates a sustained reduction in food inflation.

The central bank highlighted that a sharp decline in inflation expectations for both the three-month and one-year outlooks would help stabilize future inflation expectations.

Additionally, the decrease in crude oil prices is expected to positively influence the inflation outlook, as stated in the Monetary Policy Statement for 2025-26.

However, lingering uncertainties in global markets and the possibility of adverse weather conditions could pose risks to the inflation trajectory.

Considering these factors and assuming a normal monsoon, Malhotra projected CPI inflation for the financial year 2025-26 at 4 percent, with quarterly estimates of 3.6 percent for Q1, 3.9 percent for Q2, 3.8 percent for Q3, and 4.4 percent for Q4. The risks are deemed balanced.

The government is set to release retail inflation figures next week.