RBI Adjusts Inflation Forecast Upwards on Precious Metals Price Pressure
The Reserve Bank of India (RBI) announced a modest upward revision to its inflation projections during its final bi-monthly monetary policy meeting for the current fiscal year. The central bank cited increasing prices of precious metals as the primary factor behind this adjustment, while maintaining that overall inflationary pressures remain contained.
Revised Inflation Projections
In its latest policy statement, the RBI raised the consumer price index (CPI)-based inflation projection for the current fiscal year 2025-26 to 2.1 percent, up from the 2 percent forecast made in December. More significantly, the bank revised its outlook for the first two quarters of the next financial year.
The new projections stand at:
- 4.0 percent for Q1 2026-27 (up from 3.9 percent)
- 4.2 percent for Q2 2026-27 (up from 4.0 percent)
RBI Governor Sanjay Malhotra emphasized that despite these revisions, inflation remains "benign and near the inflation target." The central bank's medium-term inflation target is 4 percent with a tolerance band of 2-6 percent.
Underlying Inflation Trends Remain Stable
Recent data shows headline CPI inflation remained low at 0.7 percent in November 2025 and 1.3 percent in December 2025. The food group continued to experience deflation, while inflation within the fuel group remained moderate during these months.
Core inflation, which excludes volatile food and fuel components, also remained stable. Excluding the impact of gold prices, core inflation held steady at 2.6 percent in December. Governor Malhotra noted that "the underlying inflation continues to be low" despite the precious metals-driven adjustment.
Precious Metals Contribution and Other Factors
Governor Malhotra specifically identified precious metals as contributing approximately 60-70 basis points to the upward revision in inflation outlook. He explained that while core inflation is expected to remain range-bound, it faces potential volatility from precious metals prices.
The near-term outlook for food inflation appears favorable, supported by healthy kharif production, sufficient buffer stocks of foodgrains, favorable rabi sowing patterns, and adequate reservoir levels. However, the RBI identified several upside risks to inflation, including:
- Geopolitical uncertainty
- Volatility in global energy prices
- Adverse weather events
Transition to New CPI Series
In a significant development, the RBI announced it will present CPI inflation projections for the full year 2026-27 in its April 2026 policy statement. This delay accommodates the impending release of the new CPI series with a base year of 2024=100, scheduled for February 12.
The monetary policy committee's decision reflects careful balancing between acknowledging specific price pressures in precious metals while maintaining confidence in overall inflation management. The central bank continues to monitor multiple domestic and global factors that could influence price stability in the coming months.
