The Reserve Bank of India (RBI) has lowered its inflation projection for the financial year 2026-27 but cautioned that El Niño-related weather risks and uneven monsoon rainfall could affect agriculture, crop output and rural demand.
RBI Governor Sanjay Malhotra, while announcing the Monetary Policy Committee’s (MPC) decision, said a deficient and irregular southwest monsoon amid El Niño conditions remains a key risk for the agricultural sector.
He warned that any disruption in rainfall patterns could impact farm activity and weaken rural consumption.
However, Malhotra said several government initiatives, including promotion of crop diversification, climate-resilient crops and improved water conservation measures, are expected to reduce the impact of weather-related challenges.
He added that sustained growth in the services sector, the impact of GST rationalisation and stable employment conditions are likely to support urban demand and provide strength to overall economic activity.
The RBI also highlighted concerns over global crude oil price volatility, with geopolitical developments causing sharp fluctuations in energy markets. While underlying inflationary pressures remain under control, the central bank said higher food prices, fuel costs and input expenses could potentially create broader inflation risks.
The central bank has revised its FY27 inflation forecast to 5% from the earlier estimate of 5.1% made during the June policy meeting. The revision reflects recent moderation in global crude oil prices and easing supply-side pressures.
For the four quarters of FY27, the RBI expects inflation at 4.1% in the first quarter, 4.7% in the second quarter, 5.9% in the third quarter and 5.5% in the fourth quarter. The MPC said inflation risks remain evenly balanced and expects headline inflation to peak during the third quarter before declining.
The RBI has also reduced its forecast for core inflation to 4.3% from the earlier projection of 4.7%.
Historically, strong El Niño events have affected India’s agricultural output by causing irregular rainfall and higher temperatures, particularly impacting kharif crops such as pulses and oilseeds. Concerns have increased after the India Meteorological Department (IMD) forecast below-normal monsoon rainfall at around 90% of the Long Period Average (LPA).
Despite these risks, the RBI expects proactive supply-side management and sufficient foodgrain stocks to provide support and prevent significant inflationary pressures.
