RBI Projects FY27 Inflation at 5.1% Amid Iran Conflict-Driven Cost Pressures
The RBI has projected consumer inflation at 5.1 percent for FY27, citing rising fuel and input costs linked to the ongoing Iran conflict. While core inflation remains subdued at 4.7 percent, the central bank warned of upside risks from global supply disruptions and monsoon uncertainty. The repo rate remains unchanged at 5.25 percent
The Reserve Bank of India (RBI) has forecast consumer price inflation at 5.1% for FY27, reflecting concerns over higher costs stemming from the ongoing conflict involving Iran, RBI Governor Sanjay Malhotra said after the central bank’s latest monetary policy review.
The Monetary Policy Committee (MPC) has, however, retained its core inflation estimate at 4.7%, indicating that underlying demand-driven inflationary pressures remain relatively moderate.
According to the RBI’s projections, headline inflation is expected to be 4.2% in the first quarter, 5.1% in the second quarter, 5.9% in the third quarter, and 5.4% in the fourth quarter of FY27.
Malhotra noted that inflation excluding precious metals is likely to remain lower, suggesting that consumer demand is not currently generating significant price pressures.
However, he cautioned that inflation forecasts face upside risks from global supply-chain disruptions and uncertainty over the timing and distribution of the monsoon. Adequate foodgrain stocks and healthy reservoir levels, he said, offer some support against these risks.
The RBI also said it has taken steps to maintain sufficient liquidity in the financial system through a combination of short-term and long-term liquidity measures.
The central bank kept the repo rate unchanged at 5.25% and maintained its policy stance as “neutral.”
Highlighting the impact of rising energy costs, Malhotra said petrol prices have increased by 7.4%, while diesel prices have risen by 8.4%. These increases are expected to directly add around 36 basis points to headline inflation, with further indirect effects likely to emerge through higher transportation and production costs.
He added that the impact of elevated global energy prices is already visible in products such as commercial LPG, industrial raw materials, chemicals, rubber and plastic goods. The broader pass-through of these costs could continue to push inflation higher in the coming months.
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