The Reserve Bank of India has raised its FY27 GDP growth forecast to 6.7 per cent from 6.6 per cent, citing resilient domestic demand, strong manufacturing and healthy consumption. While keeping the repo rate unchanged at 5.25 per cent, the central bank also lowered its inflation forecast and reaffirmed a data-dependent policy approach amid global uncertainties
The Reserve Bank of India (RBI) on Wednesday raised its FY27 GDP growth forecast to 6.7 per cent from 6.6 per cent, signalling confidence in the economy’s resilience despite geopolitical tensions, volatile crude oil prices and uncertainty over global trade.
The six-member Monetary Policy Committee (MPC), chaired by RBI Governor Sanjay Malhotra, unanimously decided to keep the benchmark repo rate unchanged at 5.25 per cent while retaining its neutral policy stance. The RBI also left the Standing Deposit Facility (SDF) rate unchanged at 5 per cent, while keeping the Marginal Standing Facility (MSF) rate and the Bank Rate at 5.5 per cent.
Growth outlook gets a lift
The central bank upgraded its growth outlook after the economy performed better than expected in the first quarter of the financial year.
The RBI now expects the economy to grow 6.7 per cent in FY27, up from its earlier forecast of 6.6 per cent. It also raised its projection for the April-June quarter to 7 per cent from 6.6 per cent and increased the July-September estimate to 6.4 per cent from 6.3 per cent. The forecasts for the third and fourth quarters were retained at 6.5 per cent and 6.8 per cent, respectively, indicating that the central bank expects growth momentum to remain intact through the rest of the financial year.
More from BusinessGovernor Malhotra said the Indian economy had outperformed expectations despite an increasingly uncertain global backdrop.
“The Indian economy performed better than expected in the first quarter,” he said, pointing to healthy manufacturing activity, resilient services, robust exports and sustained domestic demand.
Early corporate earnings for the April-June quarter suggest manufacturing activity has remained healthy, while private consumption continues to be supported by strong discretionary spending, the Governor added.
Domestic demand remains resilient
While upgrading the growth outlook, the RBI acknowledged that external uncertainties continue to cloud the economic landscape.
“Growth, although resilient, is expected to be lower in this financial year. The outlook, however, is hazy because of the uncertainties regarding global trade policy,” Malhotra said.
“There is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action,” the Governor said.
The RBI believes India’s macroeconomic fundamentals remain strong enough to cushion the economy from external shocks, even as geopolitical tensions and trade uncertainties persist.
Inflation forecast revised lower
Alongside the improved growth outlook, the central bank marginally lowered its inflation forecast for the current financial year.
The RBI now expects consumer price inflation to average 5 per cent in FY27, compared with its earlier estimate of 5.1 per cent, reflecting lower-than-expected inflation in the first quarter.
The April-June inflation forecast has been revised down to 4.1 per cent from 4.2 per cent, while the July-September estimate has been cut to 4.7 per cent from 5.1 per cent. The projection for the October-December quarter remains unchanged at 5.9 per cent, while the January-March estimate has been marginally raised to 5.5 per cent from 5.4 per cent.
The RBI also expects core inflation to average 4.3 per cent during FY27.
Food and fuel remain the biggest inflation drivers
Malhotra said headline inflation has risen above the RBI’s 4 per cent target broadly in line with expectations but stressed that price pressures remain concentrated in food and fuel.
“The higher inflation is mostly on account of food and fuel. Core inflation continues to be benign,” he said.
He added that realised inflation during the first quarter remained marginally lower than projected because the pass-through of higher input costs to consumers has been limited.
According to the Governor, underlying inflation excluding precious metals has remained benign for some time and is expected to align with broader core inflation by the end of the financial year.
The RBI expects headline inflation to rise further before peaking in the third quarter and easing thereafter.
Oil prices and El Nino pose risks
Despite the improved inflation outlook, the Governor warned that several risks continue to threaten price stability.
“The impact of El Nino on the temporal and spatial distribution of rainfall remains a major risk. Global oil prices have also remained highly volatile, with sharp two-way movements triggered by geopolitical developments, blurring the near-term inflation outlook,” Malhotra said.
He noted that the re-escalation of the conflict in West Asia since early July has amplified volatility in energy markets.
While broad-based inflationary pressures remain modest, the RBI cautioned that higher food, fuel and other input costs could eventually trigger second-round effects and translate into wider inflation if geopolitical uncertainties persist.
RBI assures adequate liquidity
The central bank also sought to reassure financial markets that liquidity conditions would remain supportive.
Malhotra said the RBI would proactively ensure sufficient liquidity in the financial system to support economic activity.
He acknowledged that the transmission of earlier policy measures to lending rates had moderated slightly during May and June but said overall credit conditions remain healthy.
“Credit growth continues to remain robust and broad-based,” he said, reflecting sustained demand across sectors of the economy.
