Inflation in the current financial year and the next financial year ( FY27) is likely to be much lower than the Reserve Bank of India's (RBI) projections, according to a report released by the State Bank of India (SBI).
The report highlighted that several domestic factors are working in favour of easing price pressures. These include healthy progress of the monsoon, higher kharif sowing, adequate reservoir levels, comfortable buffer stock of foodgrains, and the most significant factor, GST rate rationalization.
Taking these into account, the RBI recently revised downwards its FY26 CPI inflation projection by 50 basis points to 2.6 per cent, which marks a steep 160 basis point cut from the levels projected in April.
However, the report that actual inflation in both FY26 and FY27 could be much lower than the RBI's revised estimates, supported by the positive domestic environment.
It stated, "RBI has revised downwards its FY26 CPI inflation projection by 50 bps to 2.6 per cent (a 160 basis point downward revision from April levels). We believe both FY26 and FY27 inflation numbers are likely to be much lower."
Alongside inflation, the regulator has also revised upwards its estimate for real GDP growth for FY26 to 6.8 per cent. For FY27, inflation numbers have been projected at 4.5 per cent.
The report further observed that in the face of global economic uncertainty and volatility in financial markets, the Monetary Policy Committee's (MPC) unanimous decision to hold the policy rate unchanged seems logical from a regulatory perspective.
It added that monetary policy communication is crucial in guiding expectations, shaping perceptions of the reaction function, and maintaining clarity in forward guidance.
In this context, the report mentioned that RBI appears to have left the door open for future rate cuts, given the low inflation forecasts and the recent downward adjustments in growth estimates. However, the exact timing of such a move remains uncertain.
The report also noted that the MPC's status quo decision reflects a rare form of dynamism that extends beyond monetary policy.
This approach, the report said, is facilitated by comfortable liquidity conditions and a benign external sector despite ongoing trade-led uncertainties.
The domestic financial system, it added, stands to benefit the most through a series of forward-looking reforms aimed at strengthening India's global positioning and reinforcing its already resilient economic ecosystem.
The report highlighted that several domestic factors are working in favour of easing price pressures. These include healthy progress of the monsoon, higher kharif sowing, adequate reservoir levels, comfortable buffer stock of foodgrains, and the most significant factor, GST rate rationalization.
Taking these into account, the RBI recently revised downwards its FY26 CPI inflation projection by 50 basis points to 2.6 per cent, which marks a steep 160 basis point cut from the levels projected in April.
However, the report that actual inflation in both FY26 and FY27 could be much lower than the RBI's revised estimates, supported by the positive domestic environment.
It stated, "RBI has revised downwards its FY26 CPI inflation projection by 50 bps to 2.6 per cent (a 160 basis point downward revision from April levels). We believe both FY26 and FY27 inflation numbers are likely to be much lower."
Alongside inflation, the regulator has also revised upwards its estimate for real GDP growth for FY26 to 6.8 per cent. For FY27, inflation numbers have been projected at 4.5 per cent.
The report further observed that in the face of global economic uncertainty and volatility in financial markets, the Monetary Policy Committee's (MPC) unanimous decision to hold the policy rate unchanged seems logical from a regulatory perspective.
It added that monetary policy communication is crucial in guiding expectations, shaping perceptions of the reaction function, and maintaining clarity in forward guidance.
In this context, the report mentioned that RBI appears to have left the door open for future rate cuts, given the low inflation forecasts and the recent downward adjustments in growth estimates. However, the exact timing of such a move remains uncertain.
The report also noted that the MPC's status quo decision reflects a rare form of dynamism that extends beyond monetary policy.
This approach, the report said, is facilitated by comfortable liquidity conditions and a benign external sector despite ongoing trade-led uncertainties.
The domestic financial system, it added, stands to benefit the most through a series of forward-looking reforms aimed at strengthening India's global positioning and reinforcing its already resilient economic ecosystem.
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