In a clear signal of easing price pressures, the Reserve Bank of India on Wednesday sharply cut its headline inflation projection for FY2025-26 to 3.1%, down from 3.7% earlier, even as it kept the policy repo rate unchanged at 5.5%.

RBI Governor Sanjay Malhotra, addressing the outcome of the August Monetary Policy Committee (MPC) meeting, said the central bank would maintain its neutral stance, citing “balanced risks” to inflation and signs of continued macroeconomic stability.

“Core inflation has remained steady at 4%, as expected,” Malhotra said. He noted that an above-normal south-west monsoon and other supportive factors were helping to keep price pressures in check.

Sharp drop in Q2 inflation estimate

The most significant change came in the quarterly projections. The CPI inflation forecast for Q2 FY26 was revised to 2.1% from 3.4%, while Q3 was lowered to 3.1% from 3.9%. The Q4 estimate was left unchanged at 4.4%. The forecast for Q1 FY27 was introduced at 4.9%.

“Core inflation increased slightly to 4.4%, driven by a rally in gold prices,” Malhotra said, acknowledging a temporary uptick expected in the final quarter of FY26.

Despite this, the broader inflation trajectory continues to show disinflationary momentum, reinforcing the RBI’s decision to keep rates on hold while monitoring the lagged effects of its earlier 100-bps rate cut.

Industrial growth still patchy

The RBI flagged “subdued and uneven” growth in the industrial sector, but reiterated that inflationary conditions were broadly under control. “The impact of the 100-basis-point rate cut is still unfolding,” Malhotra said, suggesting the central bank remains in wait-and-watch mode.