On 6th June, the RBI’s Monetary Policy Committee (MPC) lowered its inflation forecast for FY26 to 3.7%, down from its earlier estimate of 4%. The cut comes as inflation has steadily declined over the past six months.

RBI Governor Sanjay Malhotra said, “We have won the inflation battle,” citing a sharp drop in consumer prices, especially food. In April, overall CPI inflation fell to 3.16%, the lowest since July 2019, while food inflation eased to 1.78%.

He said strong Rabi crop output and an above-normal monsoon forecast are expected to keep food prices low. Core inflation is also likely to stay under control, helped by lower global commodity prices.

However, the RBI warned that weather conditions and global trade tensions could still pose risks.

Analysts had expected a smaller cut, but the RBI surprised with a 30 basis point reduction. SBI Research now sees inflation dipping below 3% in Q1 FY26 and predicts a full-year average of 3.5%, possibly triggering a 50 basis point rate cut this cycle.

Alongside the inflation update, the RBI also cut the repo rate by 50 basis points to 5.5% and shifted its policy stance from ‘accommodative’ to ‘neutral’.

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