RBI projects 6.7% GDP growth for FY26, cuts repo rate by 25 Basis Points

RBI predicts GDP growth at 6.7% in next fiscal year

The Reserve Bank of India (RBI) has projected India’s real GDP growth at 6.7% for the financial year 2025-26 (FY26), with steady economic momentum across quarters. The central bank also decided to reduce the repo rate by 25 basis points to 6.25%, aligning with market expectations.

GDP growth outlook

According to the RBI’s latest estimates:

• Q1 FY26 Growth: 6.7%
• Q2 FY26 Growth: 7.0%
• Q3 FY26 Growth: 6.5%
• Q4 FY26 Growth: 6.5%

In comparison, the central bank revised its GDP growth estimate for FY25 downward to 6.4%, lower than the 6.6% projection in its December 2024 Financial Stability Report.

RBI Governor Sanjay Malhotra, in his maiden Monetary Policy Committee (MPC) briefing, stated that household consumption is expected to remain robust, aided by tax relief measures announced in the Union Budget 2025-26. Fixed investment is projected to pick up due to higher capacity utilization, strong corporate balance sheets, and continued government focus on capital expenditure.

Services exports are expected to remain buoyant, contributing to overall growth. However, government consumption expenditure is likely to remain modest.

Malhotra also pointed to positive business sentiments, reflected in the RBI’s enterprise surveys and Purchasing Managers’ Index (PMI) readings, which indicate economic resilience.

Inflation projections

The RBI has projected Consumer Price Index (CPI) inflation at 4.8% for FY25, with Q4 inflation expected at 4.4%. For FY26, inflation is projected to moderate further to 4.2%, assuming a normal monsoon. The quarterly inflation estimates for FY26 are:

• Q1: 4.5%
• Q2: 4.0%
• Q3: 3.8%
• Q4: 4.2%

The governor highlighted concerns over global financial market volatility, fluctuating energy prices, and adverse weather events, stating that these factors pose upside risks to inflation. However, overall risks to the inflation trajectory remain evenly balanced.

Key policy announcements & repo rate cut

The MPC unanimously decided to lower the repo rate by 25 basis points to 6.25%, marking a shift towards a more accommodative monetary policy. This move is expected to support economic growth while maintaining inflation control.

Downside risks & global headwinds

Despite positive domestic growth indicators, the RBI has flagged several downside risks, including:

• Geopolitical tensions and protectionist trade policies
• Volatile international commodity prices
• Financial market uncertainties
• Adverse weather events impacting agricultural production

Malhotra cautioned that rising global uncertainty could impart downward risks to the economic outlook. He noted that higher interest costs, increasing debt burdens, and inflationary pressures from global market fluctuations could influence India’s economic trajectory.

Conclusion

The RBI’s economic outlook for FY26 remains optimistic, with GDP growth expected at 6.7% and inflation projected to moderate to 4.2%. The repo rate cut of 25 basis points is aimed at supporting investment and growth, while inflation risks remain balanced. However, global uncertainties and domestic fiscal constraints will continue to shape India’s economic future.

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