RBI projects retail inflation for 2025-26 at 2.1%, but expects it to rise to 3.2% in Q4 due to base effects. Governor Sanjay Malhotra flagged upside risks from geopolitical tensions and volatile energy prices, despite a bright food supply outlook.
The Reserve Bank of India (RBI) on Friday projected retail inflation for the current fiscal year (2025-26) at 2.1 per cent, even as it flagged potential "upside risks" from geopolitical tensions and volatile energy prices.
Inflation Projections and Outlook
Delivering the Monetary Policy Statement, RBI Governor Sanjay Malhotra noted that while headline CPI inflation remained low through November and December, it witnessed a slight hardening. The central bank expects a shift in the inflation trajectory during the final quarter of the current fiscal. While the annual average is pegged at 2.1 per cent, the projection for Q4 (January-March 2026) stands at 3.2 per cent.
Governor Malhotra explained that this rise is largely technical rather than a surge in current price momentum. "Unfavourable base effects stemming from large decline in prices observed during Q4 of last year, i.e., 2024-25, would lead to an uptick in year-on-year inflation in Q4 this year," the Governor stated.
Looking further ahead into the next financial year, the RBI projected inflation for Q1 at 4 per cent and Q2 at 4.2 per cent.
Analysis of Inflation Drivers
The Governor highlighted that the recent firming of inflation by 1 percentage point over November and December was "largely driven by the lower rate of deflation in the food crop." However, excluding volatile components like gold, core inflation has remained steady at 2.6 per cent.
The central bank remains optimistic about food prices in the near term due to healthy Kharif production, sufficient buffer stocks of food grains, and adequate reservoir levels across the country. "Near term outlook suggests that food supply prospects remain bright," Malhotra said, adding that "core inflation, barring potential volatility induced by prices of precious metals, is expected to be range-bound."
Upside Risks Remain
Despite the "muted" underlying pressures, the Governor cautioned that the landscape is not without challenges. "Geopolitical uncertainty coupled with volatility in energy prices and adverse weather events pose upside risks to inflation," he warned. (ANI)
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