RBI Anchors Inflation Target at 4% for Q1 FY27: Balancing Growth Amidst Global Trade Shifts

Market snapshot: The Reserve Bank of India (RBI) concluded its final Monetary Policy Committee (MPC) meeting for FY26 by maintaining the status quo on interest rates. Governor Sanjay Malhotra announced that the repo rate remains unchanged at 5.25%, following a cumulative 125 basis point reduction since February 2025. The central bank's focus remains squarely on aligning headline CPI inflation with the 4% medium-term target, a milestone now officially projected for the first quarter of FY27. This decision reflects a delicate balance between a resilient domestic growth trajectory and evolving global economic variables.

Summary: RBI keeps repo rate steady at 5.25%, projects Q1 FY27 inflation at 4%, and upgrades India's FY26 GDP growth forecast to 7.4% following positive trade developments.

Key Takeaways

• CPI inflation for Q1 FY27 is projected at 4.0%, reaching the RBI's target anchor despite a minor upward revision from 3.9%.
• Repo rate held at 5.25% with a 'Neutral' stance to support the most aggressive easing cycle seen since 2019.
• FY26 GDP growth revised upward to 7.4% from 7.3%, driven by strong domestic consumption and a new India-US trade deal.

SAHI Perspective

The RBI's projection of 4% inflation by Q1 FY27 signals the beginning of a 'Goldilocks' phase where price stability meets robust growth. By holding rates at 5.25%, the MPC is allowing the previous 125 bps in cuts to transmit fully through the banking system. The slight upward revision in inflation forecasts for FY27 suggests that while the 4% target is reachable, the 'last mile' of disinflation requires cautious monitoring of food and commodity price volatility. Investors should view the pause as a sign of institutional confidence in the current growth momentum.

Closing Insight

As India approaches FY27, the alignment of inflation to the 4% anchor provides a stable foundation for capital markets and industrial expansion. The RBI's neutral stance ensures flexibility in navigating a complex global environment while keeping domestic growth front and center.

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