The Reserve Bank of India (RBI) on Friday cut its GDP (gross domestic product) growth forecast for the current financial year to 6.6% from 6.9%, and raised the inflation projection to 5.1% from 4.6%, cautioning that elevated energy prices and global supply constraints were having “adverse spillovers” on economic activity.
And while domestic demand remains resilient, “there are energy incipient signs of moderation in some sectors”, Governor Sanjay Malhotra said.
He added that there are indications that average crude oil prices in 2026-27 would be “substantially higher” than the $85 per barrel the central bank had assumed in its forecasts in April.
As per the new forecast, growth is seen at 6.6% in April-June 2026, 6.3% in July-September 2026, 6.5% in October-December 2026, and 6.8% in January-March 2027.
Back in April, the central bank expected the country’s GDP to increase by 6.8%, 6.7%, 7%, and 7.2% in the four quarters of 2026-27.
Meanwhile, the quarterly average inflation forecasts, as measured by the Consumer Price Index (CPI), have been revised from 4%, 4.4%, 5.2%, and 4.7% to 4.2% in April-June 2026, 5.1% in July-September 2026, 5.9% in October-December 2026, and 5.4% in January-March 2027. The RBI is mandated to target a CPI inflation of 4% in the medium-term in a range of 2-6%. The new forecasts show
inflation reaching the upper bound of the RBI’s target range towards the end of 2026, with Malhotra saying the impact of the energy price shock is seen waning thereafter.
The core inflation forecast for the current year has also been increased to 4.7% from 4.4%. Core inflation is a measure of inflation that does not include food and fuel items, whose prices can be volatile. As such, it is seen as an indicator of underlying demand in the economy.
The revised macroeconomic forecasts of the RBI were announced by Malhotra while detailing the Monetary Policy Committee’s (MPC) interest rate decision. The governor said that the global environment has deteriorated since the last policy meeting with the conflict lingering amidst a fragile truce.
“The adverse implications of the extended disruption in supply chains and elevated energy prices are reflected in the moderation of growth and increase in inflation projections from the April policy,” he said.
Prices of several inputs such as commercial LPG, industrial raw materials, chemicals, base metals, rubber, and plastic products, among others, have increased. “These could exert upward pressure on CPI inflation in the coming months as firms pass on higher input costs,” he said. Generalisation of inflation through second-round effects on expectations and wages is a distinct possibility, warranting a close vigil. “The outlook also remains clouded due to the sub-normal south-west monsoon forecast and El Niño risks. Elevated energy prices coupled with global supply constraints are having adverse spillovers on economic activity,” he said.
Global economic outlook
remains clouded by the continuing geopolitical impasse in West Asia, as sharply escalating energy prices and global supply chain disruptions continue to hinder economic activity.
Faced with difficult trade-offs, monetary policy has turned more cautious, he said.
The rupee, which has fallen over 5% since March 2026 when the West Asia conflict started, gained 85 paise at 94.94 against the dollar on Friday following the latest RBI steps to boost inflows and the government move to cut capital gains tax and withholding tax. Malhotra said the RBI will continue to curb excessive volatility and prevent disorderly movements in the foreign exchange market, while emphasising that its objective is not to resist market-driven adjustments.
The Governor’s statement comes after the rupee nearly touched the 97 mark last month, while the central bank’s foreign exchange reserves declined by nearly $46 billion as it intervened in the currency market to stabilise the rupee.
Reiterating that the RBI’s
exchange rate policy remains unchanged, Malhotra said the central bank does not target any specific level or band for the rupee and allows the currency’s value to be determined by market forces. However, he noted that exchange rate movements can at times be influenced by speculative pressures and heightened uncertainty, leading to volatility that is not in line with underlying economic fundamentals.
“While our foreign exchange reserves provide a strong buffer against external shocks, we have a broad range of regulatory and market-based instruments to respond effectively as may be required,” Malhotra said.
“In this regard, we remain vigilant and are fully prepared to do whatever it takes to preserve orderly market conditions.” As on May 29, 2026, India’s foreign exchange reserves stood at $682.3 billion, adequate in terms of the standard metrics of reserve adequacy including import cover of about 11 months.
RBI governor Sanjay Malhotra. (Screengrab from video) 
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