RBI confident of sustaining inflation below 4% in FY26, signals scope for growth support
The Reserve Bank of India (RBI) has expressed growing confidence in achieving its medium-term inflation target of 4.0 per cent, as headline inflation dipped below the target level in February and March 2025, according to its latest Annual Report released on Thursday.“With inflation falling below the target in February and March 2025, supported by a sharp fall in food inflation, there is now greater confidence about a durable alignment of headline inflation with the target of 4.0 per cent over a 12-month horizon,” the report said, quoted ANI.The central bank highlighted that this trend strengthens the outlook for inflation management while creating scope for monetary policy to remain growth-supportive in a moderate economic environment.Inflation trends have shown significant improvement over the past fiscal. Headline inflation, which includes all items in the consumer price index (CPI), averaged 4.6 per cent in 2024-25, down from 5.4 per cent a year earlier. This was largely due to a fall in core inflation (excluding food and fuel), which eased to 3.5 per cent, and a 2.5 per cent deflation in fuel prices.Food inflation, which had peaked at 9.7 per cent in October 2024, dropped sharply to 2.9 per cent by March 2025. However, the RBI noted a mild uptick in core inflation in the latter half of the fiscal, attributed in part to rising international gold prices.Looking ahead to FY26, the RBI expects easing global commodity prices, softening supply chains, and a likely above-normal south-west monsoon to support price stability.The global disinflationary trend has also aided the domestic outlook. Worldwide inflation declined to 5.7 per cent in 2024 from 6.6 per cent in 2023, with projections of further easing to 4.3 per cent in 2025 and 3.6 per cent in 2026.However, the RBI also flagged potential risks that could derail the positive trajectory. These include persistent services inflation in some regions, rising US tariffs, financial market volatility, geopolitical tensions, trade fragmentation, and climate-related shocks.Despite these uncertainties, the RBI emphasised the need for vigilance, while suggesting that the current inflation trajectory provides room for policy to continue supporting growth.
