E-Paper
RBI signals relief for households as it cuts FY26 inflation forecast to 3.7%
The RBI has revised its inflation forecast for FY26 to 3.7%, down from the earlier estimate of 4%.
The Reserve Bank of India (RBI) has lowered its forecast for inflation for the financial year 2025–26 (FY26), predicting it will now be 3.7% instead of the earlier estimate of 4%, RBI Governor Sanjay Malhotra said on Friday. This is expected to bring more relief to Indian households.
RBI's Monetary Policy Committee MPC said that inflation has come down and is likely to ease further in the financial year 2025–26, mainly due to better food supply.
Malhotra said, “While food inflation remains soft, core inflation is also expected to cool further going forward.”
“The Indian economy presents picture of strength, stability and opportunity,” he said. India is growing at a very fast pace and “aspire to grow at a higher rate,” the RBI governor added.
The Reserve Bank of India also changed its monetary policy stance from “accommodative” to “neutral”, meaning it will now take a more balanced approach.
In its key decision of the day, the MPC cut the benchmark repo rate by 50 basis points, bringing it down to 5.5%. This marks the lowest repo rate in three years.
RBI cuts repo rate by 50 basis points
The RBI cut the benchmark repo rate by 50 basis points to 5.5%, marking its third straight rate cut since February and bringing the key lending rate to its lowest level in three years.
The move, aimed at reviving growth, came amid signs of an economic slowdown, with India’s GDP growth slipping to a four-year low of 6.5% in FY25. The repo rate, which is the rate at which banks borrow from the RBI, was last below this level on August 5, 2022, at 5.40%.
RBI governor said, “After a detailed assessment of the evolving macroeconomic and financial development and the economic outlook, the MPC decided to reduce the repo rate by 50 basis points.”
With this decision, the RBI has now reduced the repo rate by 100 basis points in total since February 2025. In its previous review in April, the central bank had cut the rate by 25 basis points to 6%.
Malhotra noted that the space for further rate reductions may now be limited. “After reducing repo by 100 bps in quick succession, monetary policy has limited space to support growth,” he said.
This is the first instance since the COVID-19 pandemic that the RBI has implemented three consecutive rate cuts.
On the economic front, Malhotra said the real GDP growth forecast for FY26 remains unchanged at 6.5%, with quarterly projections of 6.5% in Q1, 6.7% in Q2, 6.6% in Q3, and 6.4% in Q4. “The risks are evenly balanced,” he added.
The rate cut is expected to ease borrowing costs for home, vehicle, and business loans, providing some relief to consumers and helping stimulate demand across sectors.
