RBI lowers inflation forecast, but retains growth forecast

“ The inflation outlook for the year is being revised downwards from the earlier forecast of 4.0 per cent to 3.7 per cent” RBI governor, Sanjay Malhotra said in his policy statement on Friday .” Growth, on the other hand, remains lower than our aspirations amidst challenging global environment and heightened uncertainty.

CPI inflation in the June quarter is forecast at 2.9 per cent; at 3.4 per cent for the September quarter; 3.9 per cent for the December quarter; and at 4.4 per cent for the March 2026 quarter . “The risks are evenly balanced” Malhotra said.

“Given the inflation forecast for Q4 will be 4.4%, a repo rate of 5.5% would reflect a real rate of 1.1% even though with the present inflation rate of around 3% yields higher real rate of 2.5% with repo at 5.5%” said Madan Sabnavis, chief economist, Bank of Baroda .

CPI headline inflation continued its declining trajectory in March and April, with headline CPI inflation moderating to a nearly six-year low of 3.2 per cent (year-on-year) in April 2025. “ This was led mainly by food inflation which recorded the sixth consecutive monthly decline” the June policy statement released on Friday said.

“The RBI lowered their inflation on record wheat production, and noted prospects of an above normal monsoon auger well for the summer crop production” said a research note by Investment Bank Goldman Sachs.“Easing food costs and benign core-core inflation (core ex-precious metals) are likely to keep 2Q25 inflation close to 3%, tracking below our full-year forecast at 3.8%, which is below the central bank’s target” said, Radhika Rao, executive director and senior economist at DBS Bank. “ Added to this, the benign core prints also point to economic slack, limiting the risk of second-derivative impact on price pressures” .While growth momentum is weakening at the margin, the lowering of the policy rate cut is expected to rein in slowdown in economic activity. “ Our sense is that the RBI is using this opportunity to raise structural credit growth and potential GDP growth. In fact, the governor said that “while price stability remains the focus of monetary policy, we are not oblivious to putting in place complementary monetary and credit policies and regulations that support growth and prosperity”.” said HSBC in its report.