RBI policy: 2.6% inflation, stronger 2025-26 view

What the RBI Governor said, and why it matters

Reserve Bank of India (RBI) Governor Sanjay Malhotra has repeatedly framed India’s recent macro performance around a single theme: price stability supporting durable growth. In remarks across policy communication and public events, Malhotra said India’s growth has outpaced global peers and that the inflation-targeting framework has helped bring down average inflation. The central bank’s messaging comes at a time when geopolitical uncertainty has risen, especially due to the West Asia conflict, with the RBI warning that energy prices, freight and insurance costs, and supply-chain disruptions can affect both inflation and growth.

The Monetary Policy Committee (MPC) has also reiterated a neutral stance, signalling flexibility as it monitors evolving risks. While headline inflation has been described as contained and below target, the RBI has flagged upside risks from energy price pressures and probable weather disturbances that could affect food prices. Against this backdrop, the RBI has pointed to strong domestic demand conditions and a continuing momentum in activity, supported by private consumption and investment.

India’s growth track record highlighted by the RBI

Malhotra said India’s economy grew about 6.1% annually over the past decade, and another statement in the same set of materials cited 6.6% average growth over the past decade. He also said that, over the past four years, average GDP growth has been about 8%, and that in the first three quarters of the current calendar year for which data is available, India averaged about 8% growth. In the RBI’s assessment, high-frequency indicators till February 2026 suggested strong momentum in economic activity.

Separately, the policy narrative referenced a new GDP series with base year 2022-23, under which real GDP growth for 2025-26 was estimated at 7.6%. The RBI also noted that services-sector momentum, the persisting impact of GST rationalisation, and healthier balance sheets of financial institutions and corporates should support activity. Agricultural prospects were linked to healthy reservoir levels, while expectations and leading indicators were described as optimistic for manufacturing and services.

Inflation: what the data points show

On inflation, the RBI and the Governor pointed to a period of subdued price pressures. The MPC noted headline inflation was contained and below target, while warning that the inflation trajectory remains uncertain due to supply-chain dislocations and the risk of second-round effects. Core inflation pressures were described as muted.

The text also provided recent prints: headline inflation remained below target in January and February at 2.7% and 3.2%, respectively. Food inflation recorded inflation after deflation in the previous four months, fuel inflation was described as modest, and core inflation was stated at 3.7%. Core inflation excluding precious metals was cited at 2.1%, used to support the RBI’s view that underlying price pressures were benign.

On the longer-run outcome, two averages were cited for the inflation-targeting period introduced in 2016: one bullet said inflation targeting cut average inflation to 4.7%, while Malhotra said inflation has averaged 4.9% in the nine years post-2016.

MPC stance and the risk map: energy, weather, geopolitics

The MPC decided to continue with a neutral stance and noted that geopolitical uncertainties had “heightened significantly” since the last policy meeting. The RBI’s policy communication flagged upside risks to inflation driven by increased energy price pressures and probable weather disturbances affecting food prices. It also cautioned that supply-chain dislocations can complicate the future path of inflation even when core pressures are muted.

On growth, the RBI explicitly flagged the West Asia conflict as a potential impediment. It said higher input costs from increased energy prices and higher international freight and insurance costs, along with supply-chain disruptions, can constrain key inputs for downstream sectors and impair growth.

Government measures and policy coordination

Malhotra said fiscal consolidation and strong coordination between monetary and fiscal policies helped India manage inflation while supporting growth during challenging periods marked by tariffs and global uncertainty. He described coordinated identification of pressure points on both the demand and supply sides as a key factor behind the response. The materials also said the government took measures targeted at supporting exports and protecting supply chains, which the RBI expects to mitigate the adverse impact of geopolitical disruptions.

GST rationalisation was cited among recent measures, alongside labour reforms and production-linked incentive (PLI) schemes that focus on manufacturing and employment. The RBI also linked improved balance sheets across the government, private sector, and households to higher capacity utilisation.

Domestic energy push and import diversification amid West Asia tensions

In the context of West Asia tensions, Malhotra said India is boosting domestic production of oil and gas and diversifying imports. This was presented alongside the RBI’s broader emphasis on flexible policy and monitoring inflation and growth risks, especially when energy-linked shocks can transmit into domestic prices and costs.

Repo rate cuts, demand transmission, and credit channels

In the interview excerpts, Malhotra said the objective of a series of repo rate cuts was to spur demand, and he pointed to improving consumption expenditure over the last 2-3 quarters. He also said credit growth and offtake have been strong, particularly in MSMEs and personal loans such as home loans. His explanation for this emphasis was that these segments are linked to external benchmark rates, making monetary policy transmission quicker.

Malhotra also said reduced prices increased purchasing power, supporting consumption. And he indicated that monetary policy easing for almost a year should boost consumption further, alongside the central government’s focus on growth.

Rupee policy: no level targeting, focus on orderly movement

On the currency, Malhotra reiterated the RBI’s stated approach: it does not target any level or price band for the rupee, and lets market forces determine the appropriate level across currencies. The RBI’s focus, he said, is to curb “undue or excessive or abnormal volatility” and prevent unnecessary speculation from building into prices. He also said it was not a conscious effort to let the rupee depreciate.

In a separate exchange, he attributed recent pressures to higher tariffs and some capital outflows, while noting that Indian equities and the rupee had outperformed others since 2024, prior to “Liberation Day”, calling the move “a correction” in that sense. He added that India’s foreign exchange markets are deep and robust, and that the RBI aims to ensure orderly movement of the rupee.

Key numbers at a glance

Market Impact

For markets, the RBI’s emphasis on contained inflation and a lower inflation projection to 2.6% for 2025-26 can influence expectations around the path of interest rates and real yields, especially when the MPC remains in a neutral stance. The Governor’s comments that policy is forward-looking and that the repo rates were lowered with inflation projected at “3.5% or so” and growth expected to moderate over the next two quarters provide additional context to the stance investors track.

At the same time, the RBI has clearly highlighted risks that can re-price quickly in markets: energy price pressures linked to the West Asia conflict, higher freight and insurance costs, and supply-chain disruptions. On the currency, Malhotra’s repeated focus on orderly movement rather than level targeting sets expectations that intervention, if any, is aimed at curbing undue volatility rather than defending a particular level.

Why this matters: stability framework as a policy signal

Malhotra’s remarks consistently tie together price stability, fiscal discipline, and policy continuity as reinforcing factors for growth. He also described India’s policy framework as one that provides central bank independence “where it’s required” with accountability features built in, while noting that inflation targets are set by the government after consulting the RBI and interest rates are set by a panel with external and internal members.

The combined message from policy statements and public remarks is that the RBI sees strong domestic momentum, but is actively mapping external shocks into both inflation and growth forecasts. With headline inflation described as below target and core pressures muted, the key uncertainty flagged is the potential for supply-side shocks, particularly from energy and weather.

Conclusion

The RBI Governor’s central argument is that price stability has supported India’s growth outcomes, while coordinated fiscal and monetary actions helped manage inflation amid tariffs and global uncertainty. The MPC’s neutral stance, the RBI’s lowered inflation projection to 2.6% for 2025-26, and explicit risk warnings around West Asia and supply-chain disruptions together set the near-term policy context investors will track in subsequent RBI communications and data releases.