The RBI on Wednesday raised its growth projection for FY26 to 6.8 per cent from 6.5 per cent earlier, even as it forecast a sharper moderation in inflation. Governor Sanjay Malhotra, announcing the Monetary Policy Committee’s (MPC) resolution, said the economy had “surprised on the upside” in Q1, with GDP growing 7.8 per cent and GVA at 7.6 per cent.

High-frequency indicators suggest activity has remained firm in Q2. “An above-normal monsoon, good progress of kharif sowing and adequate reservoir levels have further brightened prospects for agriculture and rural demand,” Malhotra said. Services sector buoyancy, steady employment, GST rationalisation and rising capacity utilisation are also expected to support demand and investment.

However, he cautioned that tariff and trade uncertainties, geopolitical tensions and global financial volatility pose risks. RBI now projects GDP growth of 7 per cent in Q2, 6.4 per cent in Q3, and 6.2 per cent in Q4, with Q1FY27 pegged at 6.4 per cent.

On prices, Malhotra noted that inflation outcomes this year have been “significantly lower than projections,” helped by easing food prices, strong supply conditions and government interventions.

Core inflation remained at 4.2 per cent in August despite pressures from precious metals. CPI inflation is now seen at 2.6 per cent in FY26, with 1.8 per cent in Q2 and Q3, 4.0 per cent in Q4, and 4.5 per cent in Q1FY27.