RBI cuts inflation forecast to 4 per cent for 2025-26

"Headline inflation moderated during January-February 2025 following a sharp correction in food inflation. The outlook for food inflation has turned decisively positive. The uncertainties regarding Rabi crops have abated considerably and the second advance estimates point to a record wheat production and higher production of key pulses over last year," the RBI Governor said.

He observed that along with robust Kharif arrivals, this is expected to set the stage for a durable softening of food inflation.

"The sharp decline in inflation expectations in our latest survey for three months and one year ahead would also help anchor inflation expectations, going ahead," he pointed out.

Furthermore, the fall in crude oil prices augurs well for the inflation outlook. Concerns over lingering global market uncertainties and recurrence of adverse weather-related supply disruptions, however, pose upside risks to the inflation trajectory, the RBI Governor said.

He said that taking all these factors into consideration, and assuming a normal monsoon, CPI inflation for the financial year 2025-26 is projected at 4.0 per cent, with Q1 at 3.6 per cent; Q2 at 3.9 per cent; Q3 at 3.8 per cent; and Q4 at 4.4 per cent. He also sees the risks as evenly balanced.

Malhotra further stated that the global economy is going through a period of exceptional uncertainties.

The difficulty of extracting signals from a noisy and uncertain environment poses challenges for policy making. Nevertheless, monetary policy can play a vital anchoring role in ensuring that the economy remains on an even keel.

He said that the domestic growth-inflation trajectory demands monetary policy to be growth supportive, while being watchful on the inflation front.

"We are aiming for a non-inflationary growth that is built on the foundations of an improved demand and supply response and sustained macroeconomic balance," Malhotra said.

The RBI will remain agile and decisive in its response and put in place policies that are clear, consistent, credible and in the best interest of the economy, he added.