RBI sees inflation glide path holding at 4%

With inflation finally moving into the Reserve Bank of India’s comfort zone, the central bank has made a decisive pivot to growth. In a bold recalibration of its policy priorities, the RBI on April 9 reduced the repo rate by 25 basis points to 6% and shifted its stance from ‘neutral’ to ‘accommodative’. The minutes of the MPC meeting reveal a consensus among the panel members with a clear signal that India’s inflation trajectory has aligned with the central bank’s medium-term target of 4%, and monetary policy now has room to spur domestic demand.

“There is greater confidence of a durable alignment of headline inflation with the target of 4 per cent over a 12-month horizon,” commented RBI Governor Sanjay Malhotra.

Headline CPI inflation, which had remained sticky for much of 2024, declined sharply to 3.6% in February 2025—helped by a broad-based fall in food prices, deflation in the fuel basket, and softening global commodity costs. Food inflation dropped to a 21-month low of 3.8%, while core inflation stood at a benign 3.2%.

The RBI’s baseline inflation forecast for FY26 now stands at 4.0%, with quarterly prints expected to remain between 3.6% and 4.4%. Importantly, inflation expectations among households and firms have also cooled, further anchoring the price outlook.

According to the MPC, the significant softening of headline inflation and a benign outlook, especially on food prices, signals a likely durable alignment with the target. While the risks are evenly balanced around the baseline projections of growth, uncertainties remain high in the wake of the recent spurt in global volatility, states the minutes. In such challenging global economic conditions, the benign inflation and moderate growth outlook demands that the MPC continues to support growth.

The decision comes against the backdrop of an increasingly fragile global economy, battered by a sudden escalation in trade tensions led by sweeping U.S. tariffs. While India remains a domestic demand-driven economy, the RBI acknowledged that external shocks could weigh on investment sentiment and export growth. The central bank now projects GDP growth at 6.5% for FY26—down 20 basis points from its February forecast. “Overall, favourable factors for the inflation outlook outweigh those with possible adverse impact and should drive further disinflation in the headline CPI. It is expected that inflation will be well aligned to the target during the current financial year,” said Malhotra.

The RBI’s accommodative pivot also aims to improve monetary transmission and signal policy continuity in an uncertain environment. By taking rate hikes off the table, the central bank is hoping to revive private investment and consumption—two levers critical to sustaining growth momentum.

At a time when much of the world is struggling with either high inflation or stagnating growth, the RBI’s message stands out: with inflation under control, India is in a rare policy sweet spot.