RBI Retains 6.5% GDP Growth Forecast, Lowers Inflation Estimate to 3.1%
On August 6, the Reserve Bank of India (RBI) kept the GDP growth forecast for the financial year 2025-26 unchanged at 6.5%. However, it revised the inflation estimate down to 3.1% from the earlier 3.7%.
While announcing the third bi-monthly monetary policy decisions, RBI Governor Sanjay Malhotra said that a better-than-normal southwest monsoon, lower inflation, rising capacity utilization, and favorable financial conditions are supporting domestic economic activity. He added that strong government capital expenditure and supportive monetary, regulatory, and fiscal policies are expected to boost demand.
Malhotra indicated that consistent growth in construction and trade is likely to keep momentum high in the services sector in the coming months. He emphasized, “The growth rate remains strong and within projections, though still below our aspirations. Uncertainties around tariffs continue to emerge. The benefits of monetary policy are still playing out. The 1% cut in the repo rate since February 2025 continues to have an effect on the economy.”
The Governor stated that domestic growth is stable and largely in line with expectations, although high-frequency indicators like GST collection, exports, and electricity consumption during May-June showed mixed signals. While rural consumption has remained steady, urban spending—especially discretionary spending—has seen some improvement.
He warned of risks to the growth outlook due to ongoing geopolitical tensions, global uncertainties, and volatility in global financial markets. Considering all these factors, the RBI estimates the real GDP growth for 2025-26 at 6.5%, with quarterly projections as follows: Q1 – 6.5%, Q2 – 6.7%, Q3 – 6.6%, and Q4 – 6.3%. For Q1 of FY 2026-27, GDP growth is estimated at 6.6%, with risks broadly balanced on both sides.
On inflation, the Governor mentioned that the Consumer Price Index (CPI)-based inflation fell to a 77-month low of 2.1% in June, primarily due to a sharp decline in food inflation. He said, “The inflation outlook for FY 2025-26 is more favorable than previously expected.”
The RBI projects CPI-based inflation for FY 2025-26 at 3.1%, with quarterly figures: Q2 – 2.1%, Q3 – 3.1%, and Q4 – 4.4%. Retail inflation for Q1 of FY 2026-27 is estimated at 4.9%. Risks to inflation are also balanced on both ends.
Malhotra concluded by stating that as the Indian economy seeks its rightful place in the global landscape, it will require not just sound monetary policy but strong policy frameworks across all sectors to play a decisive role in this journey.