MUMBAI: The Reserve Bank of India (RBI) on Wednesday projected real GDP growth of 6.7% for 2026-27 and retail inflation at 5.0%, while warning that price pressures will peak at 5.9% in the December quarter before moderating. The Monetary Policy Committee (MPC) unanimously voted to keep the policy repo rate unchanged at 5.25% and retain its neutral policy stance.
The latest projections mark a slight upgrade from the RBI's June 2026 monetary policy assessment, which had pegged FY27 GDP growth at 6.6% and inflation at 5.1%.
Announcing the resolution of the MPC's 62nd meeting, held from August 3 to 5 under the chairmanship of Governor Sanjay Malhotra, the RBI projected GDP growth at 7.0% in the first quarter of FY27, 6.4% in the second quarter, 6.5% in the third quarter, and 6.8% in the fourth quarter. Growth for the first quarter of 2027-28 has been estimated at 7.3%, with risks assessed as evenly balanced.
On inflation, the central bank projected CPI inflation at 4.7% in the second quarter, 5.9% in the third quarter, and 5.5% in the fourth quarter of FY27. Inflation for the first quarter of 2027-28 has been projected at 5.3%, while core inflation for the full year is seen at 4.3%.
Explaining the decision to keep the policy repo rate unchanged, Governor Sanjay Malhotra said the recent rise in headline inflation was not broad-based but driven largely by higher food and fuel prices amid the conflict in West Asia. He said underlying inflationary pressures remain contained, prompting the MPC to retain both the repo rate at 5.25% and its neutral policy stance.
Headline retail inflation rose to 4.4% in June 2026, breaching the RBI's 4% target after remaining below it for 16 consecutive months. The MPC noted that first-quarter inflation came in 30 basis points below its earlier projection, reflecting the limited pass-through of cost pressures. However, the increase in June was driven mainly by food and fuel prices, with food inflation broadening across most components during May and June. Fuel inflation also accelerated following retail price revisions linked to higher international energy prices, feeding into services such as restaurant charges.
Core inflation, which excludes food and fuel, remained steady at 3.9% in May and June. Excluding precious metals, however, core inflation stood at just 2.3%-2.5%, indicating that underlying demand-side price pressures remain subdued. The MPC said this measure is expected to gradually converge with headline core inflation by the end of the financial year.
The RBI said the growth outlook continues to be supported by resilient domestic demand, robust private consumption, and sustained investment activity across construction, capital goods, and bank credit. External demand has also remained supportive, aided by strong services exports and a rebound in merchandise shipments.
At the same time, the MPC flagged the deficient and uneven south-west monsoon under El Niño conditions as a key risk to agriculture and rural demand. It said government measures to promote crop diversification, climate-resilient varieties, and water conservation should help cushion the impact. Urban demand is expected to remain supported by services sector momentum, GST rationalisation, and stable employment conditions, while recent trade agreements and export diversification are likely to support merchandise exports.
Despite the improved growth outlook, the committee described the overall outlook as hazy because of uncertainties surrounding the monsoon, El Niño conditions, geopolitical developments, and global trade policy. It said greater clarity on the trajectory and composition of inflation was needed before considering any policy action, adding that future decisions would also take into account the recalibration of policy rates in line with evolving growth and inflation dynamics.