RBI Lowers FY26 Inflation Forecast To 3.7% - What Is CPI, Why It Matters, And How It Affects You

The Reserve Bank of India (RBI) has revised its inflation forecast for FY26 to 3.7%, lower than the 4% projection made in April.

This change was announced during the latest Monetary Policy Committee (MPC) meeting, where the central bank also cut the repo rate by 50 basis points to 5.5% and reduced the Cash Reserve Ratio (CRR) by 100 basis points to 3%.

The move reflects RBI's growing confidence in price stability as inflation continues to ease.

Comparing CPI Inflation

The RBI has revised its quarterly inflation estimates for FY26, with the biggest drop seen in the first quarter. For Q1 FY26, inflation is now expected to be 2.9%, down from the earlier forecast of 3.6%. In Q2, it has been lowered to 3.4% from 3.9%. The projections for Q3 and Q4 remain unchanged at 3.9% and 4.4%, respectively.

Overall, the full-year inflation estimate now stands at 3.7%, compared to the earlier 4%, showing optimism about inflation staying within the RBI's comfort zone.

Also Read: RBI's Hat-trick Rate Cut: Repo Down to 5.5% as Inflation Falls to 3.7%,

Inflation in FY25

Inflation has shown a steady decline over the past year. In FY25, retail inflation averaged 4.6%, the lowest since 2018-19. The inflation rate for March 2025 dropped to 3.34%, down from 3.61% in February, marking the lowest level since August 2019.

This shows that the RBI's efforts to control inflation while supporting growth have been effective.

What is CPI and Why It Matters

The Consumer Price Index (CPI) tracks the prices of a fixed basket of goods and services that households typically consume, such as food, housing, clothing, and fuel. It is prepared by the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation.

CPI is a key indicator used by the RBI to monitor inflation and guide interest rate decisions. It also helps in adjusting wages and calculating real economic growth.
RBI's Policy Gains Momentum

With inflation projected to stay below 4%, the RBI now has more room to support the economy. The reduction in repo and CRR rates will help lower borrowing costs and improve credit flow. At the same time, the RBI has kept its GDP growth forecast for FY26 at 6.5%, showing confidence in India’s economic strength.