RBI Ups FY27 Inflation Projections by 50 Basis Points to 5.1% Amid Ongoing Conflict in West Asia
Reserve Bank of India Projects Consumer Price Inflation at 5.1 Percent for FY27
The Reserve Bank of India (RBI) has projected consumer price inflation at 5.1 percent for the fiscal year 2027 (FY27), citing elevated cost pressures arising from the ongoing Iran conflict. This projection was made by RBI governor Sanjay Malhotra after the central bank's bi-monthly monetary policy review on June 5.
The Monetary Policy Committee (MPC) retained its projection for core inflation at 4.7 percent, noting that underlying inflationary pressures remain benign for now. The RBI's latest estimates indicate that CPI inflation is expected to be 4.2 percent in the first quarter, 5.1 percent in the second quarter, 5.9 percent in the third quarter, and 5.4 percent in the fourth quarter of FY27.
The RBI's forecasts are subject to upside risks due to global supply chain disruptions and uncertainty about the spatial and temporal distribution of the monsoon. However, adequate stocks of foodgrains and satisfactory reservoir levels provide some comfort. Core inflation, excluding precious metals, is projected to be lower, suggesting that demand pressures remain contained.
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The RBI has taken proactive measures to ensure adequate liquidity in the banking system by deploying both durable and transient liquidity measures. The central bank kept the repo rate unchanged at 5.25 percent and maintained its policy stance at "neutral". Retail fuel prices have risen by 7.4 percent for petrol and 8.4 percent for diesel, which is expected to have a direct impact of around 36 basis points on headline inflation.
The pass-through of higher global energy prices is also visible in several other inputs such as commercial LPG, industrial raw materials, chemicals, rubber, and plastic products. The second-round impact of higher input costs could exert upside pressure on CPI inflation going forward.
CPI Inflation Projections for FY27
| Quarter | CPI Inflation Projection |
|---|---|
| First Quarter | 4.2% |
| Second Quarter | 5.1% |
| Third Quarter | 5.9% |
| Fourth Quarter | 5.4% |
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