RBI MPC Lowers CPI Inflation To 5%, Says El Nino Continues To Be A Major Risk

The MPC now expects consumer price inflation (CPI) to average 5 per cent in FY27, compared with its earlier projection of 5.1 per cent announced in the June policy review.

RBI Governor Sanjay Malhotra said the recent rise in headline inflation has largely been driven by food and fuel prices, rather than a broad-based increase in demand-led inflation.

Source : ABPLIVE AI

Show Quick Read

Key points generated by AI, verified by newsroom

• RBI maintained repo rate at 5.25%, marginally lowering FY27 inflation outlook.
• Headline inflation is projected to peak Q3 FY27 due to food and fuel.
• Core inflation remains benign, yet global and monsoon risks persist.

The Reserve Bank of India (RBI) on Wednesday marginally lowered its inflation outlook for the current financial year, even as it retained the policy repo rate at 5.25 per cent, signalling that underlying price pressures remain contained despite persistent global uncertainties.

The Monetary Policy Committee (MPC) now expects consumer price inflation (CPI) to average 5 per cent in FY27, compared with its earlier projection of 5.1 per cent announced in the June policy review.

Inflation Expected To Peak In Q3

While revising the full-year inflation forecast lower, the MPC cautioned that inflation is likely to rise further in the coming months before easing.

The RBI expects headline inflation to peak during the third quarter of FY27, primarily due to food and fuel price pressures, before moderating thereafter as supply conditions improve.

The central bank has also projected inflation at 5.3 per cent for Q1 FY28 while assessing risks to the outlook as evenly balanced.

The revised inflation projections are:

Q2 FY27:4.7 per cent (Earlier: 5.1 per cent)
Q3 FY27: 5.9 per cent (Earlier: 5.9 per cent)
Q4 FY27: 5.5 per cent (Earlier: 5.4 per cent)

Food And Fuel Continue To Drive Inflation

Explaining the revised outlook, RBI Governor Sanjay Malhotra said the recent rise in headline inflation has largely been driven by food and fuel prices, rather than a broad-based increase in demand-led inflation.

Headline CPI inflation accelerated to 4.4 per cent in June 2026, ending a 16-month period during which inflation had remained below the RBI's 4 per cent target. However, the reading was 30 basis points lower than the central bank's own projection for the first quarter, reflecting a lower-than-expected pass-through of rising input costs.

According to the RBI, food inflation picked up across several categories during May and June, while fuel inflation increased after retail fuel prices were revised in response to higher international crude oil prices. Elevated energy costs also filtered into select services, including restaurant charges.

Core Inflation Remains Benign

Despite higher food and fuel prices, the RBI noted that core inflation, which excludes food and fuel, remained unchanged at 3.9 per cent during May and June.

More importantly, core inflation excluding precious metals stayed in the 2.3-2.5 per cent range, suggesting that underlying demand-side inflationary pressures continue to remain moderate.

The central bank expects this measure of core inflation to remain benign in the near term before gradually aligning with headline core inflation towards the end of the financial year.

Global And Weather Risks Still On Radar

Looking ahead, the RBI said uncertainty surrounding the south-west monsoon, the potential impact of El Niño, volatile global crude oil prices, geopolitical tensions and global trade policies continues to cloud the inflation outlook.

While proactive supply-side management and adequate foodgrain stocks could help cushion food price shocks, the MPC warned that sustained increases in food, fuel and other input costs could eventually spill over into broader inflation.

At the same time, the central bank stressed that India's growth momentum remains resilient, supported by strong domestic demand, sustained expansion in manufacturing and services, and robust exports. However, policymakers said greater clarity on the future trajectory of inflation would be needed before considering any change in the monetary policy stance.