The Reserve Bank of India (RBI) on Wednesday raised its inflation and economic growth forecasts for FY27 as the Monetary Policy Committee (MPC) unanimously increased the repo rate by 25 basis points to 5.5%.
The MPC also changed its policy stance to calibrated tightening from its previous position.
RBI Governor Sanjay Malhotra said inflation and its outlook were no longer as benign as they had been last year.
The central bank raised its consumer price index (CPI)-based inflation forecast for FY27 to 5.2%.
Inflation is projected at 4.9% in Q2 FY27, before increasing to 6% in Q3 and easing to 5.7% in Q4. The RBI expects inflation at 5.6% in Q1 FY28.
RBI raises FY27 GDP growth forecast
The central bank raised its real gross domestic product (GDP) growth projection for FY27 by 40 basis points to 7.1%.
The RBI expects GDP growth of 7.2% in Q2 FY27, followed by 6.9% in Q3 and 6.8% in Q4.
For Q1 FY28, however, the RBI lowered its growth forecast to 7.1% from 7.3%.
Malhotra said domestic economic momentum remained broad-based and the MPC expected the economy to remain resilient.
Consumption supports economic momentum
Private consumption was a major growth driver during the first quarter, supported by resilient discretionary spending, according to the RBI Governor.
High-frequency indicators showed that economic activity maintained momentum during the second quarter, although growth moderated somewhat compared with the first quarter.
Manufacturing activity also remained resilient despite cost pressures, Malhotra said.
The improved domestic growth outlook comes against a more challenging global economic environment. The RBI Governor said global growth was expected to decelerate this year compared with the previous year.
The combination of stronger domestic growth and elevated inflation prompted the central bank to tighten monetary policy, with the MPC's latest decision taking the repo rate from 5.25% to 5.5%.
