‘Risks Of Higher Inflation Amplified’: RBI Governor Malhotra Warns Price Growth Will Near 6% In Q3

The Reserve Bank of India (RBI) delivered a hawkish shift to its macroeconomic projections. The central bank raised its full-year retail inflation target to 5.1% as global supply line disruptions and unpredictable weather anomalies threaten domestic price stability.

Presiding over the Monetary Policy Committee review, RBI Governor Sanjay Malhotra announced that the central bank will keep the baseline repo rate unchanged at 5.25%. While RBI maintained its flexible neutral stance, the unexpected 50-basis-point upward revision to the consumer price index (CPI) framework dominated the policy address.

Price Target Lifted 

The central bank now models headline retail inflation for the current fiscal year at 5.1%, climbing from the 4.6% threshold calculated during the April assessment. According to the updated regulatory brief, the local economy faces a distinct price acceleration that will peak uncomfortably close to the central bank's upper safety limit of 6% by late autumn.

Governor Malhotra confirmed that the revised quarterly inflation path will see living costs hitting 4.2% in Q1, jumping to 5.1% in Q2, spiking to an elevated 5.9% in Q3, before settling near 5.4% by Q4. Malhotra explained that while delayed domestic price pass-throughs have temporarily insulated retail markets, rising import bills are becoming unsustainable.

Geopolitical Friction, Agricultural Stress

The policy revision stems from a mixture of international trade blockades and domestic farming concerns. The central bank chief pointed to intensifying maritime transport logjams inside critical trade channels, compounded by a fresh wave of international commodity price shocks.

On the domestic front, the inflation path faces serious upside risks from erratic weather systems. The RBI warned that the highly uneven distribution of the southwest monsoon, along with newly developing El Niño conditions, could directly impact agricultural yields and trigger food price shocks across rural markets in the upcoming quarters.

Recognizing these intense external headwinds, the RBI adjusted India's real GDP growth forecast downward to 6.6% for the financial year, down from its earlier projection of 6.9%. The lowered growth profile shows the moderation caused by elevated global energy costs and persistent capital market volatility.

To counter these macroeconomic pressures, the central bank expanded structural access to long-term global capital by including all new 15-year, 30-year, and 40-year government securities under the Fully Accessible Route (FAR). While the MPC remains strictly data-dependent, it will maintain a highly watchful, defensive pause until external supply-side pressures show clear signs of cooling.

Also read: RBI Cuts FY27 GDP Growth Target To 6.6% As West Asia War Shocks Mount