RBI Upgrades GDP Forecast to 7.3%, Lowers Inflation to 2%

The Reserve Bank of India (RBI) has revised its GDP growth forecast for the fiscal year 2026 to 7.3 percent, significantly up from its previous estimate of 6.8 percent. Simultaneously, the central bank has reduced its inflation projection for the same period to 2 percent, down from 2.6 percent. This announcement was made during the Monetary Policy Committee (MPC) meeting held on October 20, 2023, where RBI Governor Sanjay Malhotra emphasized a rare “Goldilocks” phase of economic conditions, characterized by strong growth and manageable inflation.

During the MPC meeting, Malhotra noted that the current dynamics of growth and inflation indicate a period of stability. The RBI’s statement highlighted factors contributing to this optimistic outlook, including healthy agricultural prospects, the continued impact of Goods and Services Tax (GST) rationalization, and improved financial health of corporates and financial institutions. These elements are expected to sustain resilient economic momentum moving forward.

Growth Projections and External Factors

The RBI anticipates that GDP growth will moderate slightly throughout Fiscal Year 2026, forecasting 7.0 percent in the third quarter and 6.5 percent in the fourth quarter. For the subsequent fiscal year, FY27, the central bank expects growth rates of 6.7 percent in the first quarter and 6.8 percent in the second quarter. The RBI described the risks to these projections as “evenly balanced,” indicating a cautious yet positive outlook.

On the external front, the RBI acknowledged robust services exports despite challenges facing merchandise exports due to global economic uncertainties. The central bank pointed out that ongoing trade and investment negotiations could provide additional growth opportunities, although geopolitical and external risks remain potential obstacles to sustained economic performance.

Inflation Insights and Market Reactions

Addressing inflation, the RBI noted a significant and broad-based decline in price levels. The headline Consumer Price Index (CPI) reached an all-time low in October 2025, largely driven by an unexpected correction in food prices over the preceding months. Core inflation, excluding volatile items such as gold, also showed signs of moderation, easing to 2.6 percent in October.

The RBI’s assessment indicates that the decline in prices is becoming more generalized across various categories, suggesting a broader stabilization in the economy. This shift is expected to provide a more conducive environment for consumers and businesses alike, potentially leading to enhanced spending and investment.

Overall, the RBI’s updated projections reflect a cautiously optimistic view of India’s economic landscape, with efforts to maintain growth momentum while keeping inflation in check. The implications of these forecasts will be closely monitored by policymakers and market participants as they navigate the evolving economic landscape.