RBI slashes GDP forecast by 20 basis points to 6.5%, predicts inflation at 4% for 2025-26

The Reserve Bank of India’s Monetary Policy Committee (MPC) today lowered the GDP growth forecast for 2025–26 by 20 basis points from its February estimate, revising it to 6.5%.

“Headwinds from global trade disruption continue to pose downward risks. Taking all these factors into consideration, real GDP is now projected for this fiscal 2025-26 at 6.5% with Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6%, and Q4 at 6.3%,” said Malhotra in his second MPC statement.

This marks the second monetary policy statement by the new RBI Governor, Sanjay Malhotra, who succeeded Shaktikanta Das in December last year. In light of a rapidly evolving global landscape and fresh headwinds from U.S. tariffs, the GDP forecast has been revised downward.

“While the risks are evenly balanced around these baseline projections, uncertainties remain high in the wake of recent spike in global volatility. This downward revision essentially reflect the impact of global trade and policy uncertainties,” said Malhotra.

Malhotra said the outlook for the agricultural sector remains positive, supported by healthy reservoir levels and expectations of robust crop production. He added that manufacturing is showing signs of revival, and the services sector continues to remain resilient. He said that overall demand conditions remain strong with urban consumption picking up, especially in discretionary spending, which bodes well for economic momentum.

Malhotra highlighted the government’s continued emphasis on maintaining healthy balance sheets for banks and corporates, along with easing financial conditions, as supportive of growth.

However, he cautioned that merchandise exports may face headwinds due to global uncertainties. In contrast, services exports are expected to remain steady and resilient.

He concluded by noting that while global trade remains subdued, India's domestic fundamentals continue to provide a solid foundation for sustained economic growth.

Speaking on inflation estimates, Malhotra said that headline inflation has moderated, and that the outlook for food inflation remains stable. Assuming monsoon to be moderate, Malhotra pegged CPI inflation estimate for 2025–26 at 4%, with quarterly estimates at 3.6% in Q1, 3.9% in Q2, 3.8% in Q3, and 4.4% in Q4, with risks assessed to be evenly balanced.

Analysts believe that the revision in GDP projections and rate cuts will continue under the current global environment.

"Given the changing world order, with significant tariff imposition by US, global growth is likely to be impacted which may have impact on Indian growth also...We expect further 50 bps rate cut in next six months by RBI," said Deepak Agrawal, CIO-Debt, Kotak Mahindra AMC.