RBI Increases FY26 GDP Growth to 6.8% and Inflation to 2.6%
The RBI boosts GDP growth projection to 6.8% for FY26, attributing this to favorable monsoon conditions and GST rationalisation while lowering inflation expectations to 2.6%.
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The Reserve Bank of India (RBI) has raised its gross domestic product (GDP) growth forecast for the fiscal year 2025-26 to 6.8%, down from an earlier estimate of 6.5%. Alongside this, it has also revised its inflation forecast down to 2.6%, based on a positive monsoon and adjustments in Goods and Services Tax (GST) rates. The announcement came during the bank’s monetary policy review on Wednesday.
In August, the RBI projected a GDP growth rate of 6.5% for the current fiscal year with an inflation prediction of 3.1%. This shift signals optimism about India’s economic resilience amidst global uncertainties.
Reserve Bank Governor Sanjay Malhotra emphasized that domestic developments are shaping India’s growth-inflation narrative. He remarked, “Buoyed by good monsoon, the Indian economy continues to exhibit strength with a higher growth rate in the first quarter of 2025-26.”
Governor Malhotra highlighted that the moderation in inflation is particularly noteworthy. He pointed out that low inflation rates stem primarily from a significant drop in food inflation, aided by improved supply chains and effective government measures to stabilize the market.
“The rationale behind the GST rate rationalisation plays a crucial role in tempering inflation while bolstering consumption,” he stated, noting that while positive domestic conditions exist, external factors such as US tariffs could temper export performance.
Under the revised projections, the RBI anticipates quarterly GDP growth rates of 7.0% in Q2, 6.4% in Q3, and 6.2% in Q4 of 2025-26. For the first quarter of 2026-27, the GDP growth is expected at 6.4%.
Regarding inflation rates, core inflation remained manageable, with August data showing it standing at 4.2%, despite persistent price pressures in the precious metals market. The wider Consumer Price Index (CPI) inflation will follow a quarterly pattern, estimated at 1.8% in Q2 and Q3, and is expected to rise to 4.0% in Q4.
These projections align well with the RBI’s goal of maintaining price stability while supporting economic growth. By successfully navigating current economic challenges, the RBI aims to foster a favorable environment for sustained growth in the coming fiscal year.
