RBI MPC October policy: Central bank cuts FY26 inflation estimate to 2.6%

The Monetary Policy Committee (MPC) stated that the Consumer Price Index (CPI) inflation for Q1 of 2026-27 is projected at 4.5 per cent

The Reserve Bank of India (RBI) has lowered its inflation forecast for 2025-26 to 2.6 per cent, down from the previous estimate of 3.1 per cent. Quarterly projections are as follows: Q2FY26 and Q3FY26 at 1.8 per cent, and Q4FY26 at 4 per cent. Consumer Price Index (CPI) inflation for Q1 of 2026-27 is projected at 4.5 per cent.

 

“The risks are evenly balanced,” RBI Governor Sanjay Malhotra said.  The MPC noted that the inflation outlook has become more favourable in recent months, mainly due to a sharp drop in food prices and the rationalisation of GST rates. The decline in overall inflation is largely driven by lower food inflation, supported by better supply conditions and government measures to manage the supply chain efficiently. 

 

The recent GST rate adjustments are expected to bring down the prices of several items in the CPI basket. As a result, overall inflation is likely to be softer than the August projection, mainly because of the GST cuts and lower food prices.

 

Malhotra said, “Ongoing tariff and trade policy uncertainties will impact external demand, prolonged geopolitical tensions and volatility in international financial markets, caused by the risk of sentiments of investors, pose downside risks to the growth outlook. The implementation of several growth-inducing structural reforms, many of which were announced by the Prime Minister on August 15, including the streamlining of GST, is expected to offset some of the adverse effects of the external headwinds.” 

Quarterly CPI estimates (FY26-FY27)

• Q2FY26: 1.8 per cent (from 2.1 per cent)

• Q3FY26: 1.8 per cent (from 3.1 per cent)

• Q4FY26: 4.0 per cent (from 4.4 per cent)

• Q1FY27: 4.5 per cent (from 4.9 per cent)

 

The Monetary Policy Committee (MPC) unanimously decided to keep the repo rate at 5.5 per cent and maintain a neutral stance.

 

Other rates remain unchanged:

• Standing Deposit Facility (SDF): 5.25 per cent

• Marginal Standing Facility (MSF) & bank rate: 5.75 per cent

 

GDP growth forecast revised upwards

 

Taking current factors into account, the RBI revised real GDP growth for the year to 6.8 per cent, up from the earlier 6.5 per cent. Quarterly projections are: Q2: 7 per cent, Q3: 6.4 per cent, Q4: 6.2 per cent, while Q1 of 2026-27 is expected at 6.4 per cent.   The MPC’s next meeting is scheduled for December 3-5, 2025.