Economic Forecasts and Policy Updates by the Reserve Bank of India (RBI)

Monetary Policy and Repo Rate

• The Reserve Bank of India (RBI) is expected to maintain its policy repo rate at 5.25% throughout the next fiscal year, following a recent 25-basis-point cut.
• Many economists predict a further reduction in policy rates, anticipating a terminal rate of 5% in the current easing cycle.
• BMI, part of Fitch Solutions, forecasts that the current repo rate is near its terminal level, and no further changes are expected until the end of FY2026/27.

Inflation Forecast

• Inflation is expected to rebound to about 4% by the second half of 2026.
• The RBI forecasts inflation to ease to 0.6% by December, down from 1.8% in October.
• The Consumer Price Index (CPI) is predicted to slow to 2.9% in Q4, compared to a previous forecast of 4%.
• For FY26, the CPI forecast has been lowered to 2% from 2.6%.

Growth Projections

• The RBI increased its full-year FY26 GDP growth forecast to 7.3%, up from 6.8%.
• Growth in Q4 is now expected at 6.5%, slightly up from 6.4%.
• The Q3 forecast is maintained at 7%.

Currency and Liquidity Measures

• The rupee is forecasted to trade near 90/USD by this month-end and around 90.5/USD by 2026.
• RBI has reduced the repo rate by a total of 125 basis points this year, after aggressive hikes in 2022-23 to manage post-pandemic inflation.
• Measures to inject about $16 billion in liquidity have been announced, such as government bond purchases and a three-year USD/INR swap.

Risks and Considerations

• Risks include potential further easing and a weaker currency if trade disputes with the US continue, potentially leading to steep tariffs on exports and impacting growth.