RBI cuts GDP growth forecast to 6.5% from 6.7% for current financial year

The Reserve Bank of India has cut economic growth projection for current financial year to 6.5% from its earlier projection of 6.7%. The 20-basis points reduction in projection for gross domestic product (GDP) by the RBI came on the back of rising concerns over trade war that could negatively impact India's exports.

For the first quarter of current financial year, the RBI has pegged GDP growth forecast of 6.5%, second quarter growth has been projected at 6.7%, third quarter growth has been pegged at 6.6% and fourth quarter at 6.3%.

“The recent trade tariff related measures have exacerbated uncertainties clouding the economic outlook across regions, posing new headwinds for global growth and inflation. Financial markets have responded through sharp fall in dollar index and equity sell-offs with significant softening in bond yields and crude oil prices,” RBI Governor Sanjay Malhotra said in a statement.

“Merchandise exports would be weighed down by the evolving global economic landscape which appears to be uncertain at the current juncture, while services exports are expected to sustain the resilience. On the supply side, while agricultural prospects appear bright, industrial activity continues to recover, and services sector is expected to be resilient. Headwinds from global trade disruptions continue to pose downward risks. Taking all these factors into consideration, real GDP growth for 2025-26 is now projected at 6.5%, with Q1 at 6.5%; Q2 at 6.7%; Q3 at 6.6%; and Q4 at 6.3%,” Governor Malhotra said.

The RBI has also lowered the CPI inflation target for current fiscal to 4% on the back of broad-based seasonal correction in vegetable prices, uncertainties around rabi crop abating and prices of crude oil falling in the international markets.

“The outlook for food inflation has turned decisively positive. There has been a substantial and broad-based seasonal correction in vegetable prices. The uncertainties on rabi crops have abated considerably and the second advance estimates point to a record wheat production and higher production of key pulses over last year. Along with robust kharif arrivals, this is expected to set the stage for a durable softening in food inflation. Sharp decline in inflation expectations for three months and one year ahead period would help anchor inflation expectations going ahead,” Governor Malhotra said.

“The fall in crude oil prices augurs well for the inflation outlook. Concerns on lingering global market uncertainties and recurrence of adverse weather-related supply disruptions pose upside risks to the inflation trajectory. Taking all these factors into consideration, and assuming a normal monsoon, CPI inflation for the financial year 2025-26 is projected at 4.0%, with Q1 at 3.6%; Q2 at 3.9%; Q3 at 3.8%; and Q4 at 4.4%. The risks are evenly balanced,” RBI Governor aadded.

RBI's Monetary Policy Committee (MPC) on Wednesday unanimously decided to lower repo rate by 25 basis points to 6% with immediate effect and changed its policy stance to accommodative from neutral signalling that it will support growth in the near term.