RBI raises FY27 growth forecast, trims inflation outlook despite global headwinds; Governor cites resilient domestic economy

MUMBAI: The Reserve Bank of India (RBI) on Wednesday struck an optimistic note on the domestic economy, raising its growth projection for 2026-27 while lowering its inflation forecast, saying resilient domestic demand, robust exports, steady investment activity and easing supply-side disruptions have strengthened the macroeconomic outlook despite persistent global uncertainties.

Announcing the Monetary Policy Committee’s decision to keep the policy repo rate unchanged at 5.25 per cent and retain a neutral stance, RBI Governor Sanjay Malhotra said the Indian economy has continued to display resilience even as the global environment remains volatile due to the West Asia conflict, trade tensions and fluctuating commodity prices.

The Governor said, “Growth continues to be supported by resilient domestic demand, sustained expansion in manufacturing and services activity, and robust exports, reaffirming India’s position as the world’s fastest-growing major economy.”

#WATCH | RBI Governor Sanjay Malhotra says, “The re-escalation of the West Asia conflict since the first week of July has amplified volatility in energy prices and renewed uncertainty about supply chains. Amidst persistent global uncertainty, domestic economic activity has… pic.twitter.com/ficMOtoPzW

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He noted that the Indian economy had performed better than expected during the first quarter of the financial year, prompting the central bank to revise its real GDP growth projection for 2026-27 to 6.7 per cent. The RBI expects growth of 7.0 per cent in the first quarter, 6.4 per cent in the second, 6.5 per cent in the third and 6.8 per cent in the fourth quarter, with risks remaining evenly balanced.

The Governor attributed the improved growth outlook to healthy manufacturing activity, buoyant services, strong discretionary consumption, continued government spending on infrastructure, robust credit growth and a rebound in merchandise exports. He added that diversification of global supply chains, bilateral trade agreements and market diversification are also expected to support external demand.

At the same time, the RBI revised its inflation outlook, projecting consumer price inflation at 5.0 per cent for 2026-27 after inflation in the first quarter turned out to be lower than earlier estimated. The Governor said the recent rise in inflation was largely driven by food and fuel prices rather than broad-based demand pressures.

“The higher inflation is mostly on account of fuel and food with little signs of generalisation of price pressures so far. Core inflation excluding precious metals continues to be benign,” the Governor said. He added that while headline inflation is expected to rise further in the near term and peak during the third quarter because of food and fuel prices, underlying inflation remains moderate and is expected to soften thereafter.

The RBI, however, cautioned that the outlook continues to be clouded by multiple uncertainties, including deficient and uneven southwest monsoon conditions under El Nino, geopolitical tensions and evolving global trade policies. The Governor observed that although supply-side disruptions arising from the West Asia conflict had eased after June, the renewed escalation since early July has once again increased volatility in global energy markets and supply chains.

On crude oil, the RBI noted that international prices remain highly uncertain. While Indian basket crude had declined sharply in June, renewed hostilities in West Asia pushed prices significantly higher during July, making the near-term outlook difficult to assess. The central bank warned that sustained increases in oil prices could create second-round inflationary pressures through higher input costs.

The Governor also highlighted continued uncertainty in global trade. Fresh US tariffs, slowing global trade growth and geopolitical tensions are expected to weigh on the external environment. However, India is likely to receive support from recently concluded bilateral trade agreements, particularly the India-UK trade deal, healthy services exports and strong inward remittances, which should help contain pressures on the current account.

On the external sector, the RBI said foreign direct investment inflows remained robust while foreign portfolio investment has witnessed a turnaround in recent months, aided by policy measures to attract capital into debt markets. As a result, the balance of payments is expected to record a healthy surplus this year.

The Governor said India’s foreign exchange reserves remain comfortable at nearly USD 693 billion, providing import cover of more than ten months. Reiterating the RBI’s exchange-rate policy, he said, “We will continue with our policy of it being determined by market forces, while curbing excessive volatility, checking speculative behaviour and preventing disorderly movements to ensure that it is not out of sync with fundamentals or disruptive of economic activity.”

Summing up the policy outlook, the RBI said India’s stronger macroeconomic fundamentals continue to provide resilience against global shocks, although policymakers will closely monitor inflation, crude oil prices, weather conditions and geopolitical developments before considering any future policy action. (ANI)